For the majority of footballers, tax will be automatically deducted from their pay cheque each month. While many will find it an unwelcome shock that they only receive around half of their headline pay, a greater shock may be their additional tax bill for ‘benefits in kind’.
Almost every expense that a club pays on behalf of its footballers is also subject to tax – that means cars, accommodation, healthcare and, most costly of all, agents’ fees. Footballers need to be aware that there is a cost attached to these apparent ‘freebies’.
Agents’ fees are a particular problem. It has become commonplace for clubs to pay agents’ fees and these fees can be vast. They can be as much as 10% of the athlete's playing contract, and as high as 20% of the athlete's endorsement contract. The FA reported that £260m was paid to registered intermediaries in the year to February 2019 (http://www.thefa.com/news/2019/apr/04/intermediary-fees-and-transactions-040419).
Footballers may wonder why they need to worry if the cost is being borne by their club, but these are deemed to be a benefit in kind by HMRC. As such, players may be on the hook for 45% of the total fee. Putting that into figures, if the club pays a salary of £5m, agents’ fees may be £500,000. This could give rise to a personal tax bill of £225,000 for the player.
It doesn’t help that agents’ reporting has been prone to errors in some cases. In a recent note sent to all football association intermediaries, HMRC said agents had reported ‘unrealistic’ amounts to HMRC in respect of their work for clubs or for players; that VAT hadn’t always been correctly applied; and, even, in some cases, that there was suspicion of tax evasion. It may be that players are better off paying the agent direct and keeping control over the process.
The problem with agents illustrates a wider point. Players will often be offered a smorgasbord of apparent ‘freebies’ when they arrive at a new club. They and their family may be put up in luxury accommodation until they find a home of their own, they may have nursery or school fees paid and they may get handed a brand new car.
It is vitally important that they remember that these aren’t really ‘free’ and in some cases, they may end up paying more than they would have done to buy it outright. For example, if they are handed a Porsche Cayenne, the benefit in kind is based on the retail value of the car when first registered and includes a CO2 emission calculation. These CO2 emission rates have increased in recent years. This means the cost of this benefit has risen, even though the car is depreciating in value. Within a few years, the tax bill could exceed the value of the car. Therefore, some hybrid or electric cars with lower CO2 emissions may be a better option.
Healthcare provision, or any other expenses paid by the club, also need to be reported. These expenses need to be recorded on a P11D form and the player will pay tax on 31 January of the following year. As such, they may want to look at whether those ‘freebies’ are worth having, or whether they would rather receive additional salary and make their own arrangements.
The P11D form is submitted each year on 6th July. This is an issue for the clubs rather than the players, but the players will need to be aware of what is going on and to check their form when they receive it. The information contained on the P11D is then submitted to HMRC as part of the annual tax compliance process by the player.
Ultimately, a good tax adviser should ensure that players aren’t surprised when they are presented with a tax bill related to agency fees or other payments made by their club. However, footballers do not have to take everything they are offered and they need to realise there is a cost.
By necessity, this briefing can only provide a short overview and it is essential to seek professional advice before applying the contents of this article. No responsibility can be taken for any loss arising from action taken or refrained from on the basis of this publication. Details correct at time of publication.