HMRC ‘dual role’ agents guidance of limited help to football clubs

Ian Robotham of Pinsent Masons said clubs should take steps to review their contracts with agents where the agent has represented both the football club and player in playing contract negotiations or renegotiations, and seek professional advice, if necessary, without delay.

Robotham was commenting after HMRC issued promotional material titled ‘Help with football agents' fees and dual representation contracts’, which sets out HMRC’s recommended approach to help customers pay the correct amount of tax in relation to dual representation contracts.

Robotham said: “The guidelines are clear that it is HMRC’s view that in these types of contracts there is a greater chance that tax will have been underpaid by the football clubs and players concerned. Whilst they are a step in the right direction as they provide some useful content regarding their actual view of dual representation and explain what HMRC consider football clubs should be retaining to support values applied to club and player services, unfortunately they provide little in terms of specifics as to what evidence HMRC is expecting to see regarding services rendered or how different tax treatments might arise to payments where an agent is a family member.”

The guidelines are for football agents, also known as intermediaries, and football clubs. They deal with football agents’ fees that are charged when a football player transfers from one club to another and signs a playing contract, or a playing contract with their current club is negotiated.

The guidelines make clear that they should be read alongside HMRC’s published guidance in their employment income manual, concerning payments to intermediaries, indicators of risk in respect of such payments, and the retention of records pertaining to those transactions.

Football clubs often use the services of an agent to represent them, and the player, when negotiating a new employment, or playing, contract or renegotiating an existing contract; this is known as dual representation.

In such cases, it will be necessary to allocate the agent’s fee between player and club services, and typically the club pays the agent directly for both the player services and any club services. The player services represent a taxable amount for the player, but the club services do not.

HMRC’s latest view of dual representation is set out in the new guidelines.

Among other things, HMRC said it does not accept a 50/50 split in agents’ fees as the default position – reiterating a point it has made before. Instead, HMRC expects evidence and commercial justification for payments made.

HMRC also said it often finds that not enough evidence of commercial justification has been provided by football clubs to prove that any split in the agent fee reflects the actual facts of the case.

It said it is essential that any split in an agent fee is based on the commercial reality of the contract negotiations because the allocation of the agent fee between player and club services can have a significant impact on the liability to income tax, National Insurance contributions, and VAT liability and entitlement to reclaim VAT.

HMRC’s view is that the football agent, who generally has an existing relationship with the player, is working in that player’s interest to place them with, or keep them at, their preferred club and secure the player the best employment terms and in these cases the majority of the value of the services are being provided to the player.

HMRC’s view is also that when a representation agreement exists between the player and the football agent – a ‘player representation agreement’ – the agent primarily represents the player and acts in the player’s interest. The agent providing services to the player may be of value to the club, but it is not an automatic indicator of the agent providing services to the club.

It added football clubs should keep evidence to support any amount attributed to club services.

Robotham said: “HMRC’s position that they do not see enough evidence of commercial justification to the split adopted and that agents predominantly work for players perhaps suggests a failure to understand the importance of the services provided by an agent to a football club. A football club’s primary concern is to ensure that a player signs a playing contract with it for an amount it is commercially willing to pay, and the value and importance of the service that the agent provides to the football club to ensure the player does so cannot be underestimated.”

HMRC accepts there may be genuine dual representation, but the guidelines explain that HMRC expects parties involved in a dual representation arrangement to retain a comprehensive audit trail and documentation to demonstrate the true contractual and commercial nature of their relationships and provide a non-exhaustive list of what they expect to see in that regard, and explain that HMRC expects the documents demonstrating that to be obtained before the agent provides its services.

Robotham said: “HMRC provide a non-exhaustive list of information it expects football clubs to retain to support the determination of the amounts to be paid for player and club services. This includes information such as a football club’s request to the agent that specific services be provided, the amount the football club would be prepared to pay for those services, and any negotiation between the football clubs and agents in regard to the fees attributable to club services. This is helpful guidance to football clubs entering into these arrangements.”

“However, HMRC go on to say that it expects football clubs to also demonstrate that the agreed club services by the agent were provided, but do not give any examples of what they expect to see, instead simply saying ‘The types of services that we would accept as being club services can vary, and each case has to be considered on its specific facts and the evidence provided’.” This provides no guidance as to what kind of evidence HMRC would expect to see of services rendered and makes it difficult for football clubs to determine what records should definitely be kept,” he said.

Robotham added: “HMRC also state that in circumstances where dual representation documents are dated the same day as the player’s employment contract, its view is that this as an indicator that dual representation or any values attributed to player and club services may not reflect the commercial reality. In my view, this fails properly to appreciate the fast-paced commercial reality of the industry, and one that often deals with transactions face-to-face and on calls, with the contracts recording what has previously been agreed verbally being completed on the same day.”

According to Robotham, also of potential significance to football clubs is HMRC’s comments in relation to family members that act as agents for players they are related to; something that is reasonably commonplace within the industry.

HMRC’s view is that if these payments are for services provided during the contract negotiations, then football clubs should follow HMRC’s approach on dual representation as set out in the guidelines. However, HMRC go on to say that, depending on the specific facts of each case, a payment to a family member may be a payment to induce the player to sign for a specific club which would be taxable as employment income of the player, and that they would go on to open compliance checks to make sure the payments made are for services provided to football clubs.

Robotham said: “HMRC appears here to be suggesting that payments to family members might be taxable as inducements, but payments to non-family members would not, but provides no basis for why this distinction can be drawn; presumably HMRC are not saying that payments to family members might be treated differently to payments to non-family members providing the same services, but it is not clear. Given that it is not unusual for a family member to represent their relation in these transactions, football clubs should review all arrangements in place where a family member has acted, either directly or indirectly, to ensure that the evidence is retained to support the tax view adopted. I would recommend that football clubs seek professional assistance should they have any queries over these arrangements and the evidence that should be retained.”