Despite everything demanded of them during COVID-19, HMRC aims to recoup a total of £55.6million from the football industry in this tax year.

It currently has open investigations on nine football clubs, 23 agents who owe £4.3 million and 93 footballers who owe a staggering total of £5.8 million. And that’s just for one tax year, with a Tax Office at less than full-strength.

HMRC has been investigating the tax avoidance in the football industry for the last six years and has put a missing £464 million back into the country’s bank account. Is there more to come in the future?

What are the investigations focusing on?

HMRC’s investigations seem to be focused on two main areas: agent fees and image rights companies.

Agent fees

HMRC has recently updated its Employer Income Manual documentation concerning agents’ fees. This is a good indicator that this has been, and still is, a focus for their investigations.

When the transfer window opens agents negotiate deals on behalf of both the player and club. This ‘dual representation’ may seem counter-intuitive to someone outside the industry, but it seems to make for smoother transactions all round.

So, one agent representing a player and the football clubs involved. How do they get paid? This is the key question for HMRC. Current usual practice is that the football club pays the full fee to the agent, for both the work done on behalf of the club and the player. The player pays tax on their portion of this payment as a ‘benefit-in-kind’.

Up until now, the proportionality of club:player has been accepted as 50:50 by all concerned – including HMRC. But this is where HMRC’s investigations have uncovered a discrepancy. If the agent has completed substantially more work for the player than the club, like more 80:20, then HMRC are missing out on that additional tax. And, by definition, the player has saved money on this part of their tax bill.

HMRC has changed this 50:50 assumption and brought in a requirement that:

“In cases of dual representation, it may be necessary to split the payment made by the club to the agent to reflect the extent to which the agent represented the club and the player and how much of that payment is therefore attributable to the services provided by the agent to each of them. The club should retain documentation to demonstrate the reasoning behind any split it makes.

“That includes but is not limited to meeting notes, emails, details of time spent and other documentation to substantiate its payments; further detail of the evidence HMRC would expect to be kept is shown at EIM01152. HMRC does not accept a default split (e.g. 50:50). Instead it expects an evidenced and commercial justification for payments made.”

An additional paperwork burden isn’t going to be popular with anyone. But it looks like it’ll become a necessity in order to prove everyone’s compliance with tax regulations.

Image Rights Companies

Players don’t just earn money from their footballing contract. Another common income stream is the money they get paid for the use of their ‘image’ – in other words, photos and videos.

Lots of footballers establish companies to run this side of their income. Their limited company is paid money for the sale of their image rights and pays corporation tax at 19%. Rather than them being paid the same money as an individual and being liable for the 45% Additional Rate of income tax.

It’s expected that top end, high profile players are offered multiple publicity, advertising and sponsorship deals. So their need to have whole company set-up to administer this makes sense. But HMRC considers that other players that aren’t in such obvious demand are simply trying to avoid paying the higher rate of tax on this income.

It’s a great tax saving for the players – it could be an even bigger saving if they take the money offshore. But is it fair and is it within the tax regulations? This is what HMRC continues to investigate.