Football players – new era for payment of agent fees

With three months of 2023 remaining, football agent fees for international transfers in 2023 are nearing USD1 billion according to football’s governing body FIFA. Overall spending on deals where players switched countries between 1 June and 1 September was USD7.36 billion in the men’s game, up 47.2% on last year. It was USD3 million in the women’s game, which represents an increase of 140.8%.

Given the figures do not include transfers that take place within a single country, FIFA concedes that the overall amount paid to football agents is likely to be substantially higher.

My previous article, dated 17 August 2023, talked about the historic way in which a football player was typically subjected to paying income tax on the benefit of having their club settle their agent fee on their behalf. The agency fee (plus any applicable VAT) paid by the club was included on the annual declaration of benefits (form P11D) and the player was required to include the value of the benefit on their self-assessment tax return.

The resulting income tax liability was then settled by 31 January following the year of assessment, a process which often required advanced financial planning to ensure sufficient funds were available to fund the tax in full.

New FIFA regulations

The first part of the FIFA Football Agent Regulations 2022 came into effect on 9 January 2023. The regulations seek to ‘govern the occupation of football agents’ and represent a wide-ranging reform to the way in which agents will work in football. Some commentators have said the new regulations are, in part, aimed to curb ‘excessive fees’ received by agents.

The regulations will be fully implemented in October 2023. The most significant changes are the re-introduction of a licensing system for football agents and the imposition of a cap on the amount of commission that can be charged by agents. The way in which agents work with both players and clubs will change as a result of these new regulations.

Cap on commission

The new regulations prescribe limits on the commission payments that agents can receive from the transfer of players and from negotiating player contracts. This decision is considered somewhat controversial (particularly with agents), and it is understood to be subject to legal challenges on numerous grounds.

As things stand, however, the caps will be:

For the first USD200,000 per year earned:

• 5% of the player/coach’s gross salary when the agent represents the player/coach or the buyer only; or
• 10% of the player/coach’s gross salary when the agent represents both the player/coach and the buyer.

Beyond the initial USD200,000 per year earned:

• 3% of the player/coach’s gross salary; or
• 6% of the player/coach’s gross salary when representing both parties.

When acting for the selling club, the agent’s commission will be capped at 10% of the transfer value.

Effect on players

The new regulations bring about a fundamental change that players will need to quickly get to grips with. Players (or coaches) earning more than USD200,000 must pay their agent directly. So, instead of paying 45% of the agent cost via an income tax charge, in the future players earning in excess of USD200,000 will have to pay 100% of the fee plus any applicable VAT charge.

Determining the VAT position requires careful analysis of the contractual arrangements and an understanding of who has supplied services to whom. In a domestic deal involving a UK agent and UK clubs UK VAT will apply to any fee the agent charges. Whether this VAT is deductible as input tax of the football club contracting with the agent is an issue which has been litigated in VAT tribunals in the past. The new regulations would appear to prevent this if the VAT due is for a supply of services by the agent to the player contracting for the agent’s service and agreeing to pay the fee.

In any deal which involves an overseas agent or clubs, determining the correct VAT analysis is likely to be more complex due to the place of supply rules which operate in relation to such transactions here in the UK and overseas. Advice should be taken on a timely basis to mitigate potential VAT liabilities and identify any risks to the agent or the player resulting from the contractual terms.

All this means that what was already an important financial planning consideration has just ratcheted up several notches as the outlay for the player will clearly be much greater. It is suspected that players will pay more attention to the amount of commission being paid to their agent and furthermore, demand higher club wages to compensate. To ease the cashflow position, the agent commission will in future be payable in quarterly instalments. FIFA’s Clearing House will handle all payments, which will allow FIFA to supervise the process and check for non-compliance. Players can ask their club to deduct the agent’s service fee directly from their income and arrange payment to the agent, rather than them deal with this personally.

Dual representation

This is where the same agent acts for both the player and club in the same deal. Dual representation will still be permitted under the new regulations. Once the deal has been concluded, the agent is encouraged to send separate invoices for their work to the club and player respectively. The club will pay the invoice relating to club services and, provided the player is earning less than USD200,000, the club can also continue to pay the player’s invoice too. This will still create a benefit that is chargeable to income tax as before.

Under the new regulations, the concept of the agent being involved in a tripartite arrangement (i.e. one where the agent acts for the player, the selling club and buying club) will not be permitted.

For more information on the issues discussed in this article or to discuss your individual circumstances, get in touch with Peter Fairchild or Nick McChesney or your usual Crowe contact.