Over recent years HM Revenue and Customs (HMRC) have been enquiring into the personal tax returns of footballers. This year on 31 March 2021, HMRC issued new guidance on payments to intermediaries (football agents) in respect of their services rendered to both clubs and players simultaneously (known as dual representation).

Dual representation is where an intermediary brokers a transfer or new contract and in doing so represents both the club and the player. It is also known as a tripartite agreement.

Commonly, it is the club that pays the intermediaries fee on behalf of its player, which is taxable to the player as employment income. This is considered a benefit in kind and should be submitted to HMRC on the players P11D tax return. This is also common of dual representation transfers. The club will pay the intermediary for services rendered to the club and also for services rendered to the player. Accordingly, the player is still responsible for the tax from the benefit in kind, only up to the proportion of fees paid on behalf of the player.

Prior to the new guidance, HMRC widely accepted that fees payable in respect of dual representation were equally spilt (50:50). The player would be responsible for tax on 50% but not the remaining portion attributed to services provided to the club. However, the new guidance states;

“HMRC does not accept a default split (e.g. 50:50). Instead it expects an evidenced and commercial justification for payments made”.

As a result, clubs are now expected to retain detailed records of how the services were split to derive at the submitted percentage. This includes an audit log for each intermediary if more than one is involved in the transfer. Clubs must also demonstrate that the duties of the intermediary were proportionate of the payments made.  Intermediaries must also keep detailed records to evidence their services rendered. HMRC may also contact players and former player where it identifies indicators of risk.

Indicators that HMRC consider present additional risk include, but are not limited to:

  1. Payments treated as a benefit to the player that are lower than the amounts those players are due to make to agents under existing player/ agent agreement.
  2. Agents acting for both selling and buying club in the same transaction.
  3. Payments to individuals who are connected with (or family members of) the players.
  4. Payments to corporate (or other) entities that are controlled by individuals who are connected with family members of players.
  5. Payments to those acting as sub-agents.
  6. Payments that are said to be 100% for club services where it is not clear that another party is acting for the player.
  7. Payments to agents where they are said to act for corporate entities (typically based in tax havens) that appear to have little or no substance.

HMRC set out examples of the records that they expect each party to retain

Club records   

The club may consider keeping records covering:

  • the specific reasons for engaging an agent for the specific transaction
  • contemporaneous evidence of the engagement of the agent, the instructions given, and the level of fee discussed
  • contemporaneous evidence of the work done for the club
  • evidence to support the basis of any split in the agent’s fee paid between club and player services
  • evidence to support any variation of the fees shown in the player/agent representation agreement and the subsequent tri-partite agreement
  • evidence to substantiate the work conducted by all the agents where multiple agents are used in respect of the same player for a transaction
  • evidence to demonstrate that the fees paid to agents are commensurate with the services they provided

Agent/Intermediary records

The agent may consider keeping records covering:

  • contemporaneous evidence of their engagement by the club, the instructions given, and the level of fee discussed
  • contemporaneous evidence of the work done for the club
  • contemporaneous evidence of the work done for the player
  • evidence to support the basis of any split in the agent’s fee paid between club and player services
  • evidence to support any variation of the fees shown in the player/agent representation agreement and the subsequent tri-partite agreement

Player records

The player may consider keeping records covering:

  • discussions held with the agent during the transfer or contract negotiations
  • their understanding of any conversation resulting in their agent being engaged by the club as well as them

Transparency vs Impact and pitfalls

In setting out the new guidance HMRC are adding a layer of transparency and ensure a player is paying the correct tax. Presumably HMRC are sceptical about the level of distributed service from intermediaries to club and player, but at what costs to the industry? Its widely mooted the HMRC’s new guidance does not take into consideration the reality of the industry or the services provided are not necessarily contributable to hourly rates.

Burdens

Clubs will face the burden of retaining a significant amount of data. They will have to retain records of negotiations for a deal even if it doesn’t happened just in case it does happens. To think of how many players a club may consider and enquire about increases pressure on clubs particularly when you consider the vast amount of deals executed on deadline day. This will likely delay transfers and could see more deals completed earlier in the transfer window.

As the representation contract will be the basis of HMRC’s investigations, Intermediaries will need to ensure that their contracts with players are accurate and reflect the whole deal (as should be in accordance with FA Regulation B2).

One pitfall is that intermediaries are not remunerated for time spend or hourly pay, they are paid as agents for sourcing a player, negotiating, making arrangements, fulfilling player / club requests and a host of other matters. It is therefore very difficult for HMRC to tot up what hours or justify what each thing an agent does is worth.

We may also see disputes between clubs, intermediaries and players if records are not kept by one party, are inaccurate or don’t match each other’s.

Notwithstanding the above, the player will have to rely on and intermediary and clubs documentation to fulfil their tax burdens. If inaccurate or there is a lack of evidence, the player could be faced with a higher tax bill and or fined 100% of the underpaid contributions and the usual scale of tax penalties.

Tax Penalties for incorrect P11D returns are based on a % of potential revenue lost according to taxpayer behaviour and degree of culpability or guilt:

  • 100% (deliberate and concealed action).
  • 70% (deliberate but not concealed action).
  • 30% (careless action).
  • 0% (genuine mistake, after taking reasonable

In addition Intermediaries will have to rely on clubs and players to justify payment for their services. It is likely a host of issues could arise, take for example the rush and panic of deadline day, or a change of mobile phone were most of the work might have been conducted via WhatsApp. Time will tell if there is room for amendments to the new guidelines but in the interim it is advisable that all communications and documentation is kept to avoid any potential ramifications. 

For further information or advice please contact our Sports Lawyer, Jermaine Malcolm, on jxm@blasermills.co.uk.