Current issues with agent’s fees
Over the next two episodes we’ll be discussing the importance of tax for professional sports people. In episode part one, Martin Rankin an Associate Director in our London tax group joins us, we’ll be discussing current issues with agent’s fees.
Seeing a number of enquiries from HMRC in this area, querying the fees paid by clubs to agents in respect of player transfers and contract renegotiations.
Common area where queries crop up with HMRC which struggles to understand the nature of transfer negotiations and the relationship between players, clubs and agents. HMRC often seek for documentation confirming a position, which simply does not exist because the common way of doing business is word of mouth and on a handshake.
What is the background to this issue?
When player signs for a club there will be a fee due to the agent for the work carried on behalf of the club and the player, reflecting agent’s role as an intermediary bringing club and player together.
Part of the fee relates to work done for the player and part of that fee relates to work done for the club. With UK resident agents this fee will have 20% VAT added to it.
It is quite common for the club to settle the portion of the player’s fee on the player’s behalf. This represents a benefit to the player and the club will include it on the form P11D, which records the taxable value of any benefits a player receives from the club during a tax year.
The player pays 45% tax on the value of the benefit and the club pays national insurance on it.
Question often asked is why the player doesn’t just pay the fee if they are going to be taxed on it anyway?
If the player paid the fee, they would be paying 100% of the invoice whereas when the club pays the fee, the player only ends up paying 45% of the invoice in tax. And so the player is better off.
What has been HMRC’s issue?
HMRC are now looking to query whether it is appropriate for the agent’s fee to be split in the 50:50 way that it has been and querying whether more of the fee might reasonably be due to be paid by the player.
As highlighted earlier, we do not agree with this approach, because the agent is acting as much on behalf of the club (in introducing the player) as they are acting on behalf of the player (in bringing them to a club). In fact, we have recently brought an enquiry to a conclusion on this point where HMRC conceded the point on the split of the agent’s fee.
What else is worth bearing in mind?
It is worth thinking about how all of this fits in with the player’s and agent’s cashflow. An agent is typically paid annually (in June or October) and if they are late in issuing the invoice then this will not be taxable until it is paid by the club. Anecdotally we have also seen HMRC trying to argue that the fee is taxable by reference to when contractually due rather than when the fee was paid. We have also pushed back (successfully) on these points.
Players need to bear this in mind when thinking about their future tax payments. Most noticeable when switching clubs or players coming to the UK from abroad. As the fee is dealt with on form P11D there is not always an automatic deduction of the tax from the monthly salary. This can lead to unexpected tax bills come 31 January each year.
Recommendation is always to deal with tax return as early in the year as possible to avoid nasty surprises come January. It is also possible to notify HMRC and ask them to include provision for the fee in the player’s tax code on an ongoing basis. Agents should notify players once their fees have been paid by the club so the player can contact HMRC.
Guardian article 25/11/2020
This episode was recorded on 25/11/2020
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The Pulse from Smith & Williamson
Sports & Media Show: Current issues with agent’s fees
Broadcast on Smith & Williamson at 09:00, 8th of DECEMBER 2020
Available online from 10:00 on the same day .