Tax on Football Agents’ Fees – the Current Position

There is significant press commentary about the potential for ‘tax avoidance’ in paying agent fees in sport, particularly football, and the impact this can have on clubs and agents involved. Here we explain where the tax legislation applies and what tax issues may arise now and in the future.

Regulatory background

All UK clubs operate under the FIFA regulations which allow an agent to act for both the player and the club seeking to sign that player (termed as “dual representation”) and also, at present, for the club selling the players’ registration (thus “tripartite representation”). There are plans for the latter to change.

Agents charge fees for their services to clients, whichever party this may be. Fees charged to the player are often met by the club and, if this happens, the VAT-inclusive cost of that fee is taxable income for the player as a benefit-in-kind (BIK). In turn, a National Insurance Contributions (NIC) charge will arise for the club on that fee and, depending how the invoice was raised, the player may also have an NIC charge. The club should not recover VAT on services not received by it (i.e. the player fee) and so, pausing here, there are three different charges involved that interact even with a straightforward transaction.

Often, as has been seen of late, the quantum of the player “element” met by the club can be called into question by HMRC, challenging that a higher proportion should apply. Clearly, the lower this amount is, the less the tax and NIC liabilities will be and so there may be a tendency to understate that value.

It should be remembered that an agent’s fee is only part, and perhaps a small part, of a much larger overall commercial transaction. Quantifying what services are provided to which party correctly can be difficult and it is understandable that this has received HMRC attention. An agent may work hard for a club to recruit or negotiate the transfer of a player and, whilst not every transaction is the same, there was for some time a general acceptance by all parties to record a 50:50 split on agents’ fees between player and club. Even if the work for the club may have outweighed that for the player.

So how did we get here?

The 50:50 principle first arose from two VAT cases and was used as a method of concluding those. But this approach gradually became the industry norm and, whilst it’s been our experience that this was still challenged by HMRC, in the main it continued to be usual practice until April 2021. At that time, HMRC changed tack and began to require detailed records to support how the player/club elements are split.

HMRC enquiries

HMRC can enquire into split fee arrangements either from the player perspective or by looking into the club matters and processes. With the former the focus will be on collecting any income tax (IT) due from what HMRC perceives to be any under-declared agent’s fee BIK. Such an enquiry may range across the player’s career examining all of their transfers but will not tend to pick up on any NIC or VAT elements. Conversely when making a club enquiry, HMRC will seek to levy a NIC and VAT charge and may also ask it to meet the player’s tax on their behalf (which may then give rise to a further BIK i.e., tax on tax) or may then choose to open an enquiry into the player as well.

Is this the right approach?

In many cases the club is, in effect, paying for access to the player who is represented by the agent.  As such, under dual representation the agent has two clients and is free to offer services to both at a price commensurate with their commercial worth (perceived or real).  If the club is a willing buyer of those services, can a third party really question the quantum being charged?  This is not the only commercial scenario in which the price may seem exorbitant nor one in which different parties are charged at different rates.  It will be interesting to see whether HMRC receive a challenge as to how the value of a transaction involving dual representation is apportioned.

A further VAT complication?

The legislation for VAT is different from the income tax and NIC position and a recently released decision in the First Tier Tribunal illustrates this. The decision relates to a UK Agent acting in a player transaction between two European clubs and, in this instance, the Agent concluded a fee waiver agreement with the player meaning that the buying club would pay all fees raised by the Agent. HMRC contended that, as the player had received services from the Agent, UK VAT should be levied on the player element of the overall fee the Agent charged. However, the Tribunal disagreed and considered that the waiver was valid and that most time was spent on club services meaning that no UK VAT needed to be accounted for by the Agent in this instance.

While this transaction took place outside of the UK, there is a clear potential read across to UK transactions if it subsequently becomes a binding decision.  As such, it is worth watching developments in this area closely.

Proposed Changes

Changes to the FIFA Agent Regulations announced in January 2023, and effective from October 2023, may supersede the current focus. The summer 2023 transfer window will be the last in which tripartite representation is allowed and, going forwards, all agents will now also need to be licensed and pass qualifications to act.

Perhaps the biggest other change will be a cap on all fees an agent can charge, which will be limited to 3% of a player’s total contracted salary (when representing the player) or 3% of that salary when acting for a club with a total limit of 6% when acting for both in a dual representation scenario. While these are still significant sums (the average Premiership player salary is £2.8m), the cap may result in agents exploring different methods of charging fees and spark further HMRC attention.

How can we help?

We are a leading tax adviser in sports working with professional players and businesses to manage all the tax risks and compliance obligations that they face and in resolving disputes that have arisen with HMRC. Our tax in sport team has accumulated a wealth of experience in all the tax aspects of agent’s fees in football and all other sports so whatever your interest we can help.

BDO International also operates in 164 countries and we can also assist with international taxation matters.