Football players - taxation of agent fees

Agent fees

Many people use the services of an agent when switching jobs and do not need to think about tax consequences, as there are none. Different factors apply to footballers and other employed sportspeople who use agents, however, and they do give rise to a tax liability.

• The footballer signs an agreement with their agent.
• The agent secures a new contract with the same club, or a transfer to a new club.
• The agent issues an invoice for their work securing the contract.
• The footballer’s (new) club pays the invoice.

Payment and tax liability

When the agent’s invoice has been paid by the player’s club that payment is regarded as a benefit in kind on the player.  In this instance UK tax legislation requires that, because the employer (the football club) has settled a personal liability on behalf of an employee (the player), the employee is assessed to income tax on the value of the payment made.

The amount of the agent payment is reported by the club on the end of year form P11D. The value of the payment is included on the player’s tax return and the player owes income tax.

For example, if a UK agent’s fee is £100,000, the invoice will have 20% VAT added making the total due £120,000. This is paid by the club and the player incurs a corresponding tax liability (usually at 45%) of £54,000.

While this is a significant sum, the player is still better off than they would have been had they paid the full £120,000 invoice.

Unexpected tax demand

In many cases the player is not alerted to the tax liability when it is incurred. The position is only explained to the player when they receive their tax return to review at the end of the relevant tax year. This gives rise to cashflow problems.

Not knowing about the tax liability means the player has not set aside funds to meet it, and a frantic review of their affairs is needed to free up cash by the payment deadline of 31 January.

Solution

Appropriate planning can mitigate the risk of a footballer not being aware of the benefit in kind tax charge, and therefore not setting aside cash to pay the liability. As tax advisors, we work closely with players and their agents to gain visibility of when these invoices are issued and paid.

Where appropriate, we may recommend an approach to HMRC to spread the cost of the tax liability. The player will take home slightly less net wages each month, but the tax liability will be paid off on a monthly instalment basis, avoiding a substantial and unexpected tax demand at the end of the relevant tax year.

Alternatively, we may work alongside the player’s financial and wealth advisors so that funds from existing and/or ongoing investments are freed up just before the 31 January tax payment date to meet the tax charge.

To find out more please contact Pete Fairchild.