A yellow card for footballers and their agents……let’s bring in another match official

29 January 2021
Author: Helen McGhee

The Professional Footballers’ Association (“PFA”) has waded in on the long running tension between HMRC and the way that footballers and their agents are remunerated. The PFA is pushing for a dialogue with HMRC to consider a joined-up approach to establishing some clear and agreed principles and parameters particularly in the realm of dual representation of agents. It has become quite common for an agent to act for both the club and the footballer (as specifically permitted by FIFA) when it comes to negotiating transfers. The agent will be compensated handsomely by the club on behalf of both the club and the player for his efforts.  The footballer can mitigate the correspondingly hefty tax liability on the agent fee by treating it as a benefit in kind and the footballer is exposed to tax on only half of the total sum paid by the club given the fee is shared between both parties. Given the tax at stake, plus interest and penalties, if HMRC disagree with the position taken by the parties, any headway that the PFA can make will be most welcome and might avoid an emotional penalty shoot-out once an investigation is started.

HMRC have for a long time paid close attention to the tax compliance of footballers likely due to the huge sums involved. In the tax year 2018/19, 87 professional footballers were under investigation by HMRC, this rose to 246 for 2019/20. For agents, the numbers under investigation went from 23 to 55 over the same two tax years and for the clubs themselves from 23 to 25. The additional tax yield following the outcome of the investigations into footballers alone was over £73m in 2019/20.

As well as agents’ fees, image rights payments continue to be scrutinised by HMRC. Images rights payments can be substantial amounts paid to the player on top of salary for use of their image by the club or other parties for advertising and endorsements such as Messi’s controversial Danone/Adidas/Pepsi deals. As a form of intellectual property, the image rights can be owned by a UK company thus taxable at the corporation tax rate of 19% rather than at the 45% rate of earnings for additional rate taxpayers. For non-UK domiciled footballers paying tax on the remittance basis, image rights payments are often split between a UK and non-UK company sheltering an agreed proportion from UK tax entirely.

HMRC have always been uncomfortable with the agreed UK versus offshore split arguing that more falls in the UK tax net than has been declared as UK source hence it is vital that this split is properly documented and justified. HMRC also continue to challenge the commercial reality of the actual payment itself. Buoyed by recent successes before the tax tribunal in relation to their argument that the image right payment is essentially just additional salary and should be taxable as such, HMRC are certainly on the attack and footballers on the defensive. The pandemic adds to the Government’s need for cash so even if you thought it was all over, it’s not yet! Hopefully the PFA can make some inroads in agreeing a universally applied and accepted stance in relation to both agents’ fees and image rights payments but until then advisers must assume a robust and clearly established position and accept that the receipt of image rights payments over and above what a player’s profile might reasonably merit will be ripe for HMRC investigation.

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