Millions in taxes missed in football transfers

Football agents brokering transfers can offer their services to both players and the selling or buying club, known as “dual representation”. However, the two have different tax liabilities, with agent fees paid by a club tax deductible but those by a player not.¹

Yet fees charged to a player by an agent are often paid by the club and, when this happens, the VAT-inclusive cost of that fee should be considered taxable income for the player as a benefit-in-kind.

The FA’s updated Football Agent Regulations entered into force on 1 January 2024.² Following this, HMRC updated its guidance on the tax consequences from dual representation arrangements.³ In the guidance, HMRC has warned that dual representation agents must provide a breakdown of what percentage of their work was for the player and the club, and it “does not accept” a 50/50 split in agents’ fees as the default position.

The new regulations could see HMRC look back at previous transfers, especially high-profile cases where the amounts are likely to be substantial. They could also write to clubs, encouraging them to check they’ve applied the rules correctly to all transfers and continue to do so in the future.

CIOT immediate past president Gary Ashford said:

“Fees to the agent are primarily paid by the player and are non-tax deductible, since the player won’t be VAT registered. The complication comes when these fees are paid by a club, which is VAT registered.

“In these scenarios the club can only recover VAT on its own fee to the agent and not on services not received by it, such as the player fee. While in the past many transactions of this kind split the overall cost 50:50 between the club and player, HMRC’s view now is that should not be accepted automatically and where it’s not justified there is a loss of tax to the Exchequer.

“HMRC also believe that in ‘dual representation’ cases the agent primarily acts for the player, so any attempt to treat any part of the agent’s fees as payable by the club needs to be supported with a lot of evidence if it’s not to be subject to a ‘VAR’-style review.”

Notes for editors:

1. The following table, extracted from HMRC guidance, illustrates the tax impact of an agent’s fee paid directly by a club to an agent, and how this differs if it is declared as club or player services.
   
   Agent acting for player                                              Tax impact:
   Agent’s fee                                                                   £1 million
   Amount paid to agent plus VAT                                £1.2 million
   Income Tax on player (£1.2 million at 45%)           £540,000
   Employers Class 1A NIC (£1.2 million at 13.8%)    £165,600
   Club cannot reclaim VAT                                            £200,000
   Total tax                                                                        £905,600
   
   Agent acting for club                                                 Tax impact:
   Agent’s fee                                                                   £1 million
   Amount paid to agent plus VAT                               £1.2 million
   Income Tax on player                                                 £0
   Employers Class 1A NIC                                             £0
   Club can reclaim VAT                                                 £200,000
   Total tax                                                                       £0
2. The FA Football Agent Regulations.
3. Gov.uk - Help with football agents' fees and dual representation contracts.