Jamie Horner and Lee McIntyre-Hamilton of Keystone Law offer a summary
An ongoing dispute between Premiership clubs and agents stemming from the interpretation of recent HMRC guidance on the payment of agents’ fees, has caused a stand-off that could potentially see an increasing number of players move overseas.
Against a background of an increasing number of HMRC investigations into the tax affairs of footballers and football agents, new guidance was issued by HMRC on 31 March 2021 (HMRC Manual EIM01150 on ‘Football Clubs: Payments to Intermediaries’) concerning the payment of football agents’ fees.
HMRC may also apply the guidance when considering the tax position of rugby players, clubs and agents’ fees. Premiership clubs are proposing that the payment of agents’ fees by clubs should be prohibited. On the other hand, the agents view this proposal as an attempt to sideline them and remove their influence from the game. They also feel that this proposal is motivated by a desire by clubs to save money in the face of the financial pressures brought on by Covid-19 and the lowered salary cap biting.
Agents have threatened not to endorse deals with the Premiership clubs until the situation has been resolved and may increasingly focus their attention on securing overseas moves for players to countries, such as Japan, where clubs do pay agents fees.
The Old System
Agent fees on signing and contract renegotiation were typically settled by clubs in full. The widely accepted industry best practice (including by HMRC) was that 50% of the fee related to services to the player (treated as employment income for the player) and the remaining 50% for services to the club (on which the player is not taxed) under a system known as “dual representation”. HMRC expected a P11D benefit in kind of 50% of the fee to be reported to them and the club to settle employer’s National Insurance Contributions (NIC) on the value of this benefit.
The New Approach
HMRC has become increasingly concerned that adopting an arbitrary 50:50 split was not appropriate and was leading to an underpayment of tax (on the part of players) and NIC (on the part of clubs).
Its view is that in many cases a much greater proportion of the fee should be attributed to players based on their view that the greater share of agent services is provided to players, meaning an increased tax bill for players and increased NIC costs for clubs.
A 50/50 split is, therefore, no longer the generally accepted default position. Each case will be reviewed separately and the relevant split between the club and player determined on a case-by-case basis and with regard to all of the relevant facts and circumstances.
HMRC will look at what the player has agreed to pay their agent as recorded in the representation agreement and clubs, players and agents will be required to retain documentation to demonstrate the rationale for the split made in any particular case, which could include meeting and telephone call notes, emails, WhatsApp messages and any other relevant documentation. The new system does present a significant additional administrative burden for clubs, players and agents.
Clubs are expected to form judgements on what an appropriate split should be and will need to review any contractual arrangements, documents and communications between the agent and the player.
Although HMRC published the guidance this year, there is also potential historic financial exposure for clubs and players. HMRC can ‘look back’ for up to four tax years to assess an underpayment of income tax and six tax years for NIC.
Penalties are likely to be imposed where the guidance has not been followed and if HMRC can successfully challenge the split that a club has determined. Getting the process wrong is likely to have substantial financial consequences for all involved.
The dispute has been the subject of mediation between the clubs and agents. Common ground will have to be found in order to nip this issue in the bud and prevent long-term damage to the game.
Ultimately, the financial burden will fall most on the players and both sides must work together to act in their best interests. Players will no doubt also increasingly question the value of the player/agent relationship and what is in their best interests in the long run.
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Jamie Horner is a partner at Keystone Law, specialising in sport law, and is an RFU Accredited Agent. Lee McIntyre-Hamilton is also a partner at Keystone, specialising in tax.