Football Agents, the Cash-Cow to be milked

Why we should be concerned when HMRC knock on the football agent’s door? 

Football is a multi-billion dollar industry with a multi-billion dollar tax bill. The Premier League alone contributes an annual 4 billion pounds to the UK's Exchequer each year with over 1.5 billion pounds being collected from the taxation on players wages alone. It means that of the 786.6 billion pounds in taxes collected by HMRC in the financial year 2022-2023 almost exactly 0.5 percent came directly from the Premier League. In the context of the total tax receipts of the country with the sixth largest economy on Earth coming from a single sports league made up of just 20 teams it is pretty staggering. Amazon by comparison paid a total of just 781 million pounds in UK taxes that year or less than 0.1 percent of HMRC's total intake; Google paid just 200 million pounds or 0.025 percent.  

There are recent reports which claim that solely in terms of agents’ fees, Premier League teams have avoided 470 million pounds in tax since 2015 and over 250 million pounds in just the last three seasons. There is the issue of the players themselves, many of whom receive a significant amount of their income from image rights deals paid to companies they own, which have much lower tax rates than their playing contracts. There are a whole host of accusations of players and clubs being paid what ought to be salaried income in the form of image rights payments to lower their tax burden and HMRC are actively pursuing a number of these cases.  

A few months ago, Tax Policy Associates founded by the British tax lawyer Dan Neidle which advises policy makers and journalists on issues relating to taxation published a new report in which they claim that Premier League clubs had avoided almost half a billion pounds worth of tax over the last eight years by artificially structuring their payments to agents. By falsely alleging that agents were representing both the player and the club in almost all Premier League transfer and new contracts agreements, players had effectively halved their tax liability  

Here's how it works. Most footballers have agents who act on their behalf, these agents tend to take a commission every time a player moves clubs or signs a new contract as well as permanently being in receipt of a percentage of a player's earnings. The agent is working on the player's behalf, they are seeking to get the best possible terms for their clients and secure them a move to the biggest, richest or just otherwise most appealing Club interested in signing their clients.  

However, in the vast majority of Premier League transfers and contract extensions, the agent is recorded as having worked on behalf of both the player and the club. Not only that, they are cited in almost all deals as having done an equal amount of work for both parties and they therefore receive 50 percent of their fee from the player they represent and 50 percent of their fee from the club. Given the fact that an agent is seeking as much money as possible for their clients and they are for themselves and a club is looking to pay as little money as possible while still retaining their players or securing their transfer targets it would appear to present a pretty blatant conflict of interest for anyone to be acting on behalf of both parties, dual representation,  in that transaction. 

As far as HMRC is concerned, in terms of the fee that is paid to the agent, they would get twice the revenue, once on the player's end and once on the agents. By claiming dual representation though and that they are acting on behalf of both the player and the club in most instances. Agents receive half of their fee from the club which is only taxed once and has the even greater tax advantage from the club's perspective given that they are able to claim VAT back. 

To give an example, Football Club A (FCA) have allocated one million pounds in agents fees that they are willing to spend in order to sign a player from Football Club B. If the player’s agent was only paid by him, in exchange for representing him and not by (FCA), after National Insurance and income tax the player would receive 534,000 pounds of that initial 1 million pounds, then when he paid his agent the agent themselves would incur a further 78,000 pound VAT bill. Meaning that off that initial 1 million pounds allocated by (FCA) HMRC would receive 612,000 pounds and the agent just 388,000 pounds. 

The biggest driver in this whole tax avoidance scheme are the clubs themselves, whose accountants are actually reported to have been in dialogue with other Premier League clubs in order to create a system of such ubiquity that would give the scheme an air of legitimacy or failing that at least a sense in which it is too big to fail since any attempts of punish it would require severe fines and punishments being imposed upon every Club in the division. 

(FCA) when wanting to sign a player from (FCB) that same allocated one million pounds this time, the agent is put down as being a dual representative working on behalf of both the player and the club. 500,000 pounds is paid to the player for him to pass on to his agent so it is taxed in the same way as the first example and ends up being worth 194,000 pounds in the agent's pockets. The other 500,000 pounds is paid directly to the agent by (FCA) who can claim the VAT back. The agent receives the entire 500,000 pounds in total therefore, the agent has gone from receiving just 388,000 pounds if they were paid by the player themselves out of their after-tax earnings to 694,000 pounds when half of their fees are paid for by the club. That is a loss to HMRC of 306,000 pounds on a single transaction worth one million pounds. 

In 2021, FA data revealed that 68 of all Premier League deals involved dual representation. Adding dual representation recognizes the substantive services delivered by the agents at each party. Dual representation is legitimate because the agent is actually providing a valuable service to both the player and the club. They would point to things like assisting with work permits, helping the player settle in at their new club and into their new surroundings and most notably of all from the club's perspective aiding them in their attempt to sign a player ahead of any rivals. 

If HMRC chooses to pursue them there is a very big legal distinction between tax avoidance and tax evasion. The FA rules on dual representation state – ‘a football agent may only perform football agent services and other services for one party in a transaction subject to the sole exception in this article: a permitted dual representation, a football agent may perform football agent services and other services for an individual and an engaging entity in the same transaction provided that prior explicit written consent is given by both clients’  

There is precedent for HMRC scrutinizing the financial affairs of Premier League clubs and recovering enormous amounts of unpaid tax. Between 2015 and 2022 across all areas of the football industry HMRC recovered 573 million pounds. If HMRC also came after clubs for the improper payments of agents, some clubs and indeed agents would be impacted heavily. 

Premier League clubs payments of Agents isn't the only aspect of football finance where  HMRC might be missing out. In July 2022 it was revealed that a record 329 footballers in England including some of the Premier League's biggest stars were under investigation for tax avoidance, triple the number that were investigated the previous season. A further 31 clubs and 91 agents were also revealed as being under investigation, most of these cases which primarily concern Premier League players and some of the highest earners in the championship relate to image rights payments. Footballers pay an enormous amount of tax when compared to comparatively wealthy people as a whole, because they are employees.  

Erling Haland pays close to 50 percent tax on his Manchester City salary as opposed to under 40 percent for dividends and 19 percent for capital gains when it comes to his image rights, that is to say his legal rights over his own image, name, likeness, voice signature and other personal characteristics. He is able to form a company which instead of paying individual tax rates is able to pay business rates, just 19 percent assuming that Haland's image rights company is domiciled in the United Kingdom. Many Premier League players form offshore image rights companies further reducing their tax bill as with dual representation there is nothing illegal about doing this but what HMRC are concerned with is clubs over inflating the value of a player's image rights to them whilst artificially reducing their salaried income so as to once again reduce the overall tax burden. 

Watch this space!