Following a number of tax disputes, HMRC has clarified the tax treatment of football agents’ fees and dual representation contracts, flagging the risk of compliance checks if tax rules are flouted
HMRC is trying to stamp out the payment of fees directly to the agent when they are acting for the club, which results in zero tax liability, as opposed to the scenario where the agent acts for the player.
The move comes as HMRC said it ‘recognises that dual representation contracts can be complex. The purpose of these guidelines is to set out our recommended approach to help customers pay the correct amount of tax’.
The risk heightens in cases where payments are made to agents, who then immediately disperse the payment to one or more other agents, increasing the risk of compliance checks.
HMRC said: ‘It is important that any fees related to contract negotiations are described as such and not categorised as something else, such as scouting fees. We will critically examine such charges and services provided by football agents.’
Another problem area is instances where a payment to a family member may be a payment to induce a player to sign for a specific club. In these cases, any payment to the family member would be taxable as employment income of the player.
Targeted primarily at football agents and clubs, the guidance is also highly relevant for footballers and coaching staff, and focuses on the tax issues related to the agents’ fees that are charged when a football player transfers from one club to another, or a playing contract is negotiated with player’s current club.
The guidance clarifies HMRC’s views on dual representation contracts focusing on compliance risks, employment reporting obligations and requirements to provide advice on the audit trails, evidence and documents to support any tax position.
It also takes into account tax considerations as a result of the latest Football Association (FA) Football Agent Regulations which were published on 1 January 2024.
In contract negotiations, agents typically act on behalf of the players they represent, as their role is usually to negotiate the best possible contract and terms for the player.
Though the bulk of the agent’s services will generally be on behalf of the player, in some cases an agent represents both a player (player services) and a club (club services) during contract negotiations. This is referred to as ‘dual representation’.
In such cases, it will be necessary to allocate the agent’s fee between player and club services. This will reflect the extent to which the agent represented the player and the club, and how much of that payment applies to the services provided by the agent to each of them.
Normally, the club pays the agent directly for both the player services and any club services. The amount paid by the club to the agent on behalf of the player represents a taxable amount for the player, which is liable for income tax.
HMRC said it ‘often finds that not enough evidence of commercial justification has been provided to prove that any split in the agent fee reflects the actual facts of the case. In these instances, we may need to have a more detailed review of arrangements to make sure that they accurately reflect the split in the agent’s fee’.
‘Whilst we recognise the concept of dual representation, the split of payment value of the agent fee between player services and the club services must represent the commercial reality of the services provided. HMRC does not accept a 50/50 split in agents’ fees as the default position,’ HMRC stressed.
In HMRC’s view, the football agent, who generally has an existing relationship with the player, is working in that player’s interest to place them with (or keep them at) their preferred club, and secure the player the best employment terms. In these cases, HMRC’s view is that the majority of the value of the services are being provided to the player.
On apportionment of fees, HMRC added: ‘The agent providing services to the player may be of value to the club, but it is not an automatic indicator of the agent providing services to the club.’
Due to tax implications, HMRC said: ‘It is essential that any split in an agent fee must be based on the commercial reality of the contract negotiations. This is because the allocation of the agent fee between player and club services can have a significant impact on the liability to income tax, National Insurance contributions, and VAT liability and entitlement to reclaim VAT.
‘Consequently, fees for services which are wholly allocated to the club, or which are split in such a manner that the player portion is less than stated in the player-agent agreement, significantly increases the potential for an HMRC Compliance Check.’
An audit trail and original documentation must be retained to demonstrate the true contractual and commercial nature of their relationships to support any claims of dual representation contracts and values of player and club services.
This must include the original player-agent representation agreement, details on the potential buying club’s initial approach to the player and the agent, including any terms offered, and all the dual representation contracts between the various parties.
HMRC stressed: ‘It is important that clubs retain all the evidence stated to support any tax position they take, to clarify the club’s view on any split of agent fee.’
On the VAT front, the amounts of outputs and output tax on the agent’s VAT return which relate to club services should match the amount the club has reclaimed on their VAT return, subject to the normal VAT rules.
Story wrote by Sara White.
