Taxing Times for the Football Industry


The life of a Premier League Footballer; £100,000 a week, Lamborghinis, 60,000 strong crowds and… tax returns?

Back in January 2019, Ronaldo was given a 23 month prison sentence and fined almost 19m Euros for tax related offences in Spain (although he managed to avoid serving any time) and two years earlier Lionel Messi was given a 21 month prison sentence by the Spanish Courts for tax fraud, which he managed to avoid by agreeing to pay 400 Euros for every day of the sentence.

And it looks like Britain's tax authority, HM Revenue and Customs (HMRC) have been inspired by their Spanish counterparts with new figures showing they are actively targeting the Football Leagues.

A freedom of information request shows HMRC carried out 246 investigations into footballer's tax affairs in 2019/20; this is almost treble the number of investigations in 2018/2019. This is reflected in the overall additional tax collected from HMRC investigations into professional football; the sum collected in 2018/19 (£35.3m) doubled in a year with £73.1m ($95.6m, €81.2m) being collected in 2019/20.

These investigations are normally into tax risk areas such as:

  • image rights;
  • agents' fees; and
  • dual representation.

But what exactly are HMRC worried about in relation to these tax risks?

Image Rights

Image rights are the unique player features, for example their name, nickname or their appearance, amongst other characteristics. It is fairly common for a player to set up a specific image rights company to exploit the commercial value of their own image.

Upon the player transferring their image rights to the company, the company will deal with commercial partners as well as the player's club. These contracts will licence the player's image, but may also include an obligation for the player to use a sponsor's product and make appearances. With the rise of social media and the popularity of footballers on various platforms, it is easy to see how a famous player's endorsement would be advantageous to a sponsor.

However, there may be a limit on the commercial partners that the company can contract with, so as not to conflict with the club's commercial agreements. As an example, Liverpool players in their personal capacity may not be able to enter into an agreement with a bank, as Standard Chartered PLC is the main sponsor for the club.

The tax benefits of this approach are potentially substantial. Instead of being charged the higher rate of income tax (45%), the company will be charged corporation tax (currently 19%). However, the remuneration received by image rights companies from clubs must be equivalent to the value of the player's image in light of how that image was exploited for commercial gain. Clubs must not route any proportion of a player's salary for playing football through an image rights company. Accordingly, "if HMRC feel that too much of the player's pay has been diverted into this area [Image Rights] they may decide that the money should be treated as wages". Subsequently, such monies received would be subject to higher rate income tax, illustrated in the decision in the 2019 case Hull City Tigers v HMRC, which involved former footballer Geovanni.

Agents' fees and dual representation

On the transfer of a player it is common practice for the purchasing club to pay the player's agent's fee on the player's behalf. The tax authorities view this payment as a benefit in kind and the player will thus have an income tax liability. HMRC would view the monies paid to the agent as if they had initially been received by the player and the higher rate of tax would be payable on the figure. This may come as a shock to a player who never physically receives the money, yet pays substantial figures in income tax due to this arrangement.

Often an agent will act for both the player and the club during the transfer, known as "dual representation". A well-known example is agent Mino Raiola acting for both parties on Paul Pogba's £89m transfer to Manchester United FC. Should the player agree to dual representation, there will not be a conflict of interest issue. Again, it is common practice for the club to pay the agent in this scenario. In this instance, the club will have a tax liability for the proportion of work undertaken by the agent in respect of services to the club, and the player will have an income tax liability on the proportion of work undertaken by the agent for the player. The player needs to be made aware of their tax liability when not physically receiving the monies.

Football being unfairly targeted?

HMRC are so concerned about these risks they have set up a dedicated 'football compliance project'. They hope that aggressively targeting the footballing industry will act both as a deterrent for those who might look to bend the rules and encourage clubs, players and agents to actively co-operate with HMRC on tax issues.

However, are HMRC focusing a disproportionate amount of their limited resources on ensuring compliance in football?

Although footballers' wages, agent fees and transfer fees are very high when compared to average salary in the UK, they are in fact relatively low when compared with the gargantuan sums being made in other corporate industry.

A report published in 2019 found an estimated £395bn was lost due to corporate tax avoidance each year and found that the UK was "by far the world’s biggest enabler of corporate tax dodging, helping funnel hundreds of billions of dollars away from state coffers".

Are HMRC picking the low-hanging fruit rather than tackling the much bigger problem of corporate tax-avoidance? The high-profile nature of celebrities may make them targets for HMRC who can benefit from the publicity of their investigations. 

Equity, the union which represents actors, singers, dancers and other creative professionals certainly think so and accused HMRC of a "ruthless grab for revenue" last year. Targeting famous creative professionals, perceived to be extremely wealthy, may be politically popular and receive media attention but the deputy general secretary at Equity, Stephen Spence, said "We cannot be the Plan B if HMRC can’t get [revenue] off big corporations — because that’s too hard — or wealthy individuals with offshore assets, because that’s also too hard". 

Is the same true of HMRC's targeting of the footballing industry?

However, the (albeit subtle) distinction between tax avoidance and tax evasion should be drawn. Corporate tax avoidance may be considered immoral but it is not illegal; the use of effective tax structuring simply minimizes these companies' tax liability within the law. In contrast, the investigations into footballers for image rights, agents' fees and dual representation are for tax evasion; i.e. footballers are illegally evading tax owed.

With Covid-19 draining the nation's coffers, HMRC will likely become even more tenacious in recovering evaded tax. Sensible footballers may wish to add a reliable accountant to their retinue to ensure they aren't caught out.

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"...if HMRC feel that too much of the player's pay has been diverted into this area [Image Rights] they may decide that the money should be treated as wages."
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