Update on tax issues associated with football agents’ fees

It was anticipated that HMRC would issue guidelines for football agents in our previous articles Introduction to the tax issues arising from professional football clubs paying fees of a player’s agent and Proposed FIFA changes to the rules which are ‘on hold’. These duly arrived on 13 May 2024. This article seeks to provide a summary of the guidelines.     

What does the latest guidance say?

The over-riding and recurring theme throughout the guidelines are a call for detailed information being kept that reflects the commercial reality of the work that agents perform and critically, on behalf of which party, i.e. the player personally, or the club. Additionally, while HMRC recognises the concept of duality (where an agent performs duties on behalf of both a player and the club in the same transaction), HMRC does not accept a 50:50 split of the agent’s fees as applying equally to player and club duties. It has been HMRC’s view for some time that a football agent has a relationship with the player and works in the player’s interest to negotiate the best possible contract with the club. As such, HMRC’s view is that most of the value of the agent’s services are provided to the player.

Why is this important?

The allocation of an agent’s fee between the player and club can have a dramatic effect on the overall quantum of tax (both income tax and VAT) and National Insurance Contributions (NICs) payable. HMRC has quoted the following example which assumes: 

• both the agent and club are VAT registered 
• any club payment of the agent’s fee is declared on the annual return of benefits and expenses (form P11D) 
• class 1A NICs are due.

The numbers speak for themselves. HMRC states that fees for services which are wholly allocated to the club or are split in such a manner that the player portion is less than what is mentioned in the player/agent agreement significantly increases the potential for a compliance check. In other words, in these situations, HMRC will investigate.

What evidence is required?

HMRC’s guidance note helpfully includes a (non-exhaustive) list of the types of evidence that agents and clubs are expected to retain. For example, emails, contracts, letters, faxes, memos, notes of meetings and telephone calls, and text messages (including messaging apps. 

• The player-agent representation agreement. 
• permission given by the club holding the player’s registration to the potential buying club to approach the player and their agent, when the potential buying club wishes to recruit that player. 
• The potential buying club’s initial approach to the player and the player’s agent, including any terms offered to the player and agent. 
• The club’s request for: 
  • the agent to provide the club with services 
  • the specific services the club requires the agent to provide to the club 
  • the amount the club would be content to pay to the agent in return for those services. 
• The agent’s agreement to enter into a dual representation contract, including the types of services to be provided, the initial terms on which any such agreement was negotiated, and the final terms agreed — this information should also make clear the valuation that the agent itself placed on its services to the player and club respectively. 
• The player’s agreement to enter into a dual representation contract. 
• The dual representation contract between agent, player and club. 
• the player’s agreement to enter into an employment contract with the club, including initial terms on which any such agreement was negotiated, as well as the final terms agreed.

Furthermore, evidence should also be kept by clubs and agents demonstrating that the agreed club services by the agent were actually performed. Ideally, the evidence will clearly show the services provided by the agent are consistent with what was originally agreed.

Other important points

HMRC expects agents to present separate invoices for the work undertaken for the player and the club, with detailed narrative included of the services provided. There is also an expectation that all parties involved in a player transaction have confirmed with one another that they have given the same values to any split of player and club services when making returns to their respective tax authorities. This should mean that the amounts of output tax on the agent’s VAT return relating to club duties should be identical to the amount the club has reclaimed on their VAT return. Any discrepancies will be investigated. The guidance note mentions that before entering into a representation agreement, an agent must advise all parties of the ‘full particulars of the proposed arrangements’, including the proposed fee to be paid by all parties to the agent.

In player deals involving multiple agents, the original documents prepared should reflect the true commercial reality of the situation and not be prepared to satisfy industry regulations. It is also paramount that any fees related to contract negotiations are described as such and not categorised as something else such as scouting fees. It is suspected that HMRC’s drive is to remove payments made to unlicenced agents (the term ‘shadow’ agents is used in the guidance note).

Any payment made by clubs to a member of the player’s family who state they are acting as an intermediary should follow HMRC’s guidelines on dual representation in the usual way. The point is made however, that HMRC is aware that, in some cases, clubs may make a payment to a family member to induce the player to sign (or re-sign). In these circumstances, the payment to the family member will be treated as employment income for the player and will be subjected to normal payroll deductions.

The guidance note concludes with comments on how errors made on forms P11D, payroll deductions and VAT returns should be dealt with.

In conclusion, we welcome HMRC’s guidance note as the detail should enable clubs and agents to improve record keeping and get documents in place that accurately reflect and report the true commercial reality of a player transaction. It is best for all concerned to get things right first time and these notes should improve compliance and might lead to fewer enquiries in future which can be costly and time consuming.

For more information, please speak to your usual Crowe contact or contact Pete Fairchild or Rob Janering.