There may be a Christmas surprise looming for many professional footballers from Her Majesties Revenue and Customs (HMRC) if not this Christmas, then in the very near future, if their agents payments haven’t been accounted for thoroughly and correctly.

Recently Chiron Sports & Media (like all other licensed football agents) were made aware by The Football Association that HMRC have requested that they submit details of all payments made to FA Licensed Agents in respect of Agency Activity on behalf of football clubs, paid via The FA Clearing House for the years ending 31st March 2010 and 31st March 2011.

Under Section 13 of the Taxes Management Act 1970 and in accordance with their subsequent legal obligations, The FA will have to comply with this notice from HMRC and submit the following details

  • The name and address of the agent to whom the earnings were passed;
  • The amount of money that was passed to the agent;
  • The name and address of the original payer of the money;
  • The name of the player to whom the payment relates;
  • The date on which the payment was made.

From our experience, many players do not know where their representation contract with their agent is or more importantly when it actually ends, so is it little surprise there is little understanding of what they ultimately pay their agent and the taxation due to HMRC.

In certain circumstances there may be additional payments to the agent in terms of dual representation and other commissions and payments made and/or due to the agent in question, but the crux of the matter is, that some agents actual sell to their client that the club pays the agents fees and not the players, but in most instances this is not the case, and the agent is paid on the players behalf (often by the club) and as such taxation is due from the player as benefit in kind.

 

Confusion and Misinterpretation

People outside of ‘the game’ or even just on its periphery with a sporting interest, may well be thinking that this is just a case of HMRC “crossing it’s T’s and/or dotting the I’s” in what should be a straightforward task of reporting payments made, as would be the case of a normal employment situation. However due to the clauses and complexities that often litter playing contracts in terms of payments – the reporting of who pays agents, what they are paid and when, it is acceptable to think some payments may have been accidently excluded or deliberately ignored.

One of the possible causes of confusion in terms of the tax due on agents fees, is the well exercised right of the player to discharge (in writing) their obligation to pay his agents fees, and for the club to pay them on the players behalf. From talking to many people inside professional football there is quite a bit of confusion and misinterpretation in terms of who is liable for the taxation on such payment, but this shouldn’t be the case. Most, if not all professional taxation advisers and accountants will confirm that these payments even if made on the players behalf, are a benefit in kind and taxation is due to be paid by the player.

Another possible area of confusion may well be the spectre that is ’duality’ (dual representation). Where in terms of player representation and subsequent negotiation, the agent can represent and be paid by both parties (e.g. player and club), this can only be undertaken should the player give permission in line with the rules and regulations. In such cases it is understandable (yet maybe not acceptable) that in very rare cases a payment made to an agent may be misinterpreted in terms of which party is making that payment and who has the liability to pay tax on this payment, not to mention how much and when.

 

Who Foots the Bill ?

So what will be the eventual fallout when this information is provided to HMRC by the deadline of 31st October 2011? For not only agents but also the clubs and players they work with and represent.

 

The Taxation and Reporting Effect on Clubs (and Possibly Sponsors etc)

Firstly in the case of the clubs, it is envisaged that in most (if not all) there will be a limited effect from the reported details to HMRC from the FA in regards to payments to agents. Most of the deductions and fees would have already been catered for with efficient and legitimate business and accounting practices by the club, whether this be exposure to additional national insurance contributions or other payments due subject to reported agent related payment.

The Taxation and Reporting Effect on ‘LICENSED’ Football Agents

Chiron envisage most licensed agents would have already allowed for and reported affected payments to the Football Association, as is their obligation under both FA and FIFA regulations. However for those agents who may have chosen to ‘innocently’ ignore a payment received from a player or club, they could find themselves with a hefty bill from HMRC not to mention the possible ramifications to their licensing status from the FA or FIFA – which in our opinion is well deserved.

Chiron Sports & Media would hope that most agents and their associated tax and accounting advisers have advised their client players in declaring payments on their behalf to the agent as the specified ‘benefit in kind’ and thus paid the necessary taxation. However Chiron will not be holding our breath on this, as whether it be down to a lack of communication from a contract negotiation or a more inappropriate action of tax evasion by the footballer or his agent, there could be a nasty surprise around the corner.

The Taxation and Reporting Effect on Football Players

The players in many cases may receive a not-so-nice surprise from HMRC in the form of an unexpected tax bill for agents fees that will be seen as a taxable ‘benefit in kind’ – which they may have been led to believe had already been paid for or taxation on payments to the agent involved was not their responsibility, however even if the agent is not physically and/or directly paid by the player the player may still be subject to taxation due on the agents fees.

The Taxation and Reporting Effect on ‘UNLICENSED’ Agents

Whether Chiron Sports & Media, or many others like it or not (including The FA and FIFA), there are unlicensed agents and 3rd parties involved in the representation and professional advice given to professional footballers and clubs.  So how does this reporting affect them?

It can be argued that in a large proportion of cases it won’t affect them, as such payments firstly wouldn’t knowingly be reported to the Football Association thus leaving a gap in the tax that may or not be due to HMRC.

But could this be a blessing in disguise? If there was a bit of a slip-up and 100% accurate reporting in terms of agents/representatives both licensed and unlicensed would be reported by clubs. There has for a long time been an objective and requirement for the footballing authorities (FIFA and the National Football Associations) to tackle unlicensed agents and maybe this reporting strategy may unearth illegal employment and payments to agents whether or not taxation is due.

 

So Who Ultimately Foots the Bill ?

It is difficult to see the overall effect of the reporting to HMRC in terms of agents payments, however in our minds it should receive praise as the payments to be made are clear, right, proper and due, as would be the case for any law abiding employer or tax paying person in the UK.

The players however will in a lot of cases be receiving a nasty surprise when HMRC come to review their affairs. This may spoil this Christmas’ celebration if not come to bite them in 2012. Taking into account the level of fees paid to some agents to protect the player’s gross salary or fees paid by clubs, the player may well be the victim of the financial fallout and subsequently the bill. Rightly or not, most if not all clubs are well protected to make sure their own house is in order in terms of finance, accounting and taxation, after all they are a business.

We at Chiron just hope that the majority of players have their own advisers in place to make sure they have paid the necessary payments due to HMRC and can avoid getting a nasty surprise in terms of a bill from HMRC that they ultimately ‘thought’ they had paid.