HM Revenue & Customs (HMRC) have been clamping down on how tax is paid by football players over the last few years. On 31 March 2021, HMRC released new guidance. This guidance, along with the rise of investigations, indicates the changing attitude of HMRC to how tax on football agency fees will be handled going forward.
What was the position?
It is common in practice for an agent to represent both the player and the club in a transfer or contract negotiations. This is known as dual representation and is permitted by the Football Association under the current regulations.
When representing both player and club, agents would split the services provided for the player and services provided for the club 50:50 for the purposes of tax. This position was accepted by HMRC until now.
The club would pay 100% of the agency fee, of which 50% of this (plus VAT) would be paid on behalf of the player for the services provided to the player as a benefit-in-kind. A player or his employer must declare any benefit-in-kind and pay income tax on it.
What is the future position?
In HMRC’s recent guidance, HMRC has set out “indicators” that present additional risk and may give HMRC a cause to investigate:
1. Payments treated as a benefit to the player that are lower than the amounts those players are due to make to agents under existing player/agent agreement.
2. Agents acting for both selling and buying club in the same transaction.
3. Payments to individuals who are connected with (or family members of) the players.
4. Payments to corporate (or other) entities that are controlled by individuals who are connected with family members of players.
5. Payments to those acting as sub-agents.
6. Payments that are said to be 100% for club services where it is not clear that another party is acting for the player.
7. Payments to agents where they are said to act for corporate entities (typically based in tax havens) that appear to have little or no substance.
HMRC is now requesting that clubs should retain documentation to demonstrate the reasoning behind how the club and the agent decided the split between services provided by the agent to the player and services provided by the agent to the club.
The recent guidance expressly states “HMRC does not accept a default split (e.g. 50:50). Instead it expects evidenced and commercial justification for payments made.”
Even if clubs enter into contractual arrangements which contain such terms, HMRC expects clubs who rely on such contracts to be able to demonstrate those contracts reflect the substance of work and services provided by the agent to the club.
HMRC expects clubs to retain an audit trail and other documentation, such as:
• Telephone notes, meeting notes and memos
• iMessages, Whatsapp messages, SMS/text messages
• Emails and faxes
• Other relevant supporting documentation (such as letters and contracts)
Such documentation should not just evidence the reasons behind how a fee and a split was decided, but it should also evidence actual work done and actual services provided by each agent to the player and the club, such as any:
• Payments made for player recruitment
• Scouting services
• Consultancy work
The club should also provide details on the time spent by agents and details of any arrangement that an agent has with a third party to assign or subcontract services (if any).
Furthermore, HMRC’s guidance is not exclusively for clubs. Agents are advised to keep all evidence in relation to:
• Engagement and instructions from the club
• Work done for the club
• Work done for the player
• Reasons behind how a fee and a split is decided
Players should also keep records of discussions held with their agent during any transfer or contract negotiations.
What will be the impact of these changes?
The administrative burden on clubs and agents (and players) has now increased, and the expectation that every detail is recorded in an industry that is fast-paced, spontaneous and often works within tight time frames (i.e. deadline day) seems rather unrealistic. It would appear that HMRC is moving away from the simple 50:50 structure, which was commonplace in the industry, and is preparing for even greater scrutiny of tax in football in the future.
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