Why HMRC is huge Premier League transfer window tax headache
Is HMRC the biggest barrier stopping a healthier Premier League football transfer system, Alistair Culverwell asks.
Another World Cup ended after high drama on the pitch and off the pitch,it was the scene of high stakes deal-making as clubs negotiated with agents to secure the most sought after talent – particularly players who shone.
And there is a certain spectator that pays much more attention to what’s going on off the pitch than on it – HMRC.
Here in the UK, HMRC scrutiny of the beautiful game is nothing new. In the year ending March 2024 HMRC opened investigations into 20 football clubs, 83 football players and 21 football agents. Both continue to be a major focus area for HMRC but also a major headache for clubs, players and agents.
Unfortunately for those in the professional football industry things are unlikely to get easier any time soon.
The government has launched a consultation on proposals to introduce a criminal offence for making “reckless untrue statements” in respect of direct taxes (similar legislation already exists for indirect taxes such as VAT). Such legislation, if enacted, brings particular risks in football, particularly for the players themselves.
HMRC taking aim
Under Fifa and FA rules, agents regularly act for both the player and a club on a transfer or contract renegotiation to get a deal over the line. Agents typically split their fee between services provided to the club and player, and as the club usually pays the fee, the ‘player element’ is taxed on the player as a benefit in kind.
However, HMRC regularly challenges the split of the total fee between club and player services – arguing a greater proportion of the fee should be taxed on the player. They also go to battle on what is more important in determining the split – the contractual terms – or an underlying analysis of the work undertaken by the agent.
Should this be split based on the quantity of the work (i.e. time spent working for each), or the quality (which party received the greater benefit from the agent’s services)? Aspects that can be hard to decipher in the often chaotic and last minute world of football transactions.
HMRC’s latest guidance, updated in May 2024, focussed primarily on the records clubs and agents should retain and didn’t address the underlying issue – the uncertainty over how the split of an agent’s fee between club and player services should be determined.
The proposal to introduce a criminal offence for making “recklessly untrue statements or declarations” only increases the risk. The definition of “statement” is potentially wide – including oral statements – and recklessness, defined in the same way it is for other criminal offences, is by its nature subjective.
Football finance under spotlight
The risk in football transactions is increased given the complex pattern of facts. Players subject to investigation by HMRC may not be party to all of the facts they are being asked to answer to (they may not have been in the room for all of the negotiations). Even if individuals are not ultimately charged, a criminal investigation can have a hugely detrimental effect on an individual’s personal and professional life.
Taken alongside the government’s stated aim to crack down on tax evasion, and an increase in criminal investigations, this could be a significant challenge for professional footballers. The potential new powers set out in the consultation could bring the UK into closer alignment with other jurisdictions – Spain being a notable example of a country which has criminally investigated and prosecuted a number of high profile individuals including footballers.
An easier, and more elegant solution, would be early and upfront engagement between HMRC, players, clubs, agents and their advisers. This would take away the guess work, enable the parties to present the economics of the deal to HMRC before tax returns are filed, agree on a logical split and sign it off.
Alistair Culverwell is head of tax dispute resolution at Forvis Mazars