ISTA response to claims of huge scale tax avoidance in English Football

Sofia ThomasJuno Sports Tax
31 March 2023
Response Tax Policy Associates tax avoidance in Premier League football report

Official Response

We reject the conclusion of this report that there is widespread tax avoidance in English Football. The report focuses on the use of dual representation agreements in football and suggests that these agreements are a sham and that the agent only works for the player. The report’s conclusion is based on a fundamental misunderstanding of the relationship between agents and clubs. Our chair provides her detailed comments below.

Tax avoidance in English football? Or a total misunderstanding of the entire industry?

Yesterday, Tax Policy Associates published a report of their findings that English Premier League football clubs have avoided £470m of tax. I reject the findings of the report and here’s why:

  1. The practices in football hiring are more stringent and more tax is paid in comparison to employment practices across almost all other industries;
  2. The reality of dual representation negotiations are that the agent provides services to the Club;
  3. Dual Rep agreements meet none of the hallmarks of a tax avoidance scheme.

What were the main points from the report?

The report comments that tax avoidance is rife within football. The avoidance is perpetrated by clubs who are paying football agents who are providing services under a dual representation agreement. Under this agreement the football club pays 50% of the agent’s fees and the footballer is deemed to pay the other 50% by treating it as a benefit–in-kind (with the inevitable income tax, NIC and VAT implications). The report, in contrast, argues that ‘realistically the agent is acting only for the player’ and therefore the player should pay all the agent’s fees and suffer all the tax consequences.

1. Hiring Practises

A little background is helpful. In simple terms, footballers are employees of their Clubs. Clubs employ footballers to undertake services for them.

Now, in general, if Employer A needs someone to fill a position, they may go to a recruitment consultant, the consultant will find the potential employee, the employee gets the job and the recruiter is paid a percentage of the employee’s salary as commission.

In this transaction the new employee has no benefit in kind – even though they benefit from this move. The employer takes a full deduction for the payment to the recruiter and this is standard practice, there are no dual representation agreements.

In football the recruitment agency is, in essence, the football agent. So why is there such a difference when this same transaction is applied to football? Yes, the agent has a more nuanced role than a recruitment consultant but the tax law applied is the same.

In fact, in football when the hire takes place there is more tax paid (than in a standard recruitment) as the player is subject to a benefit in kind on their 50% of the fee.

The report notes that ‘realistically the agent is acting only for the player’ if we were to accept that (which I don’t) then the same logic could be applied to the recruitment of any employee where a recruiter is used – in which case why is this challenge being levied only on one industry?

2. The reality of the agents role

It is untrue to say that in all cases of dual representation agreements that agents only act for the player.

The below is an anonymised email exchange in a dual representation agreement – which is typical of what we have seen in various investigations.

Club A to Agent: We’ve heard player A at Club B is looking for a move, can you confirm?

Agent: Yes, he would move for a salary increase and Club wants a transfer fee of £2.6m

Club A: Can he come down and meet the Director, the max we can pay is £1m on transfer and no salary increase.

Agent: Will arrange the meeting

Meeting with player

Club A: If you can get Club B to agree for £1m transfer and player to stay on same salary we can move forward.

This was done 5 days before the transfer window closed. The player moved from Club A to Club B with no increase in salary, no beneficial conditions in his contract and really no significant benefit to him other than he moved clubs and may have more opportunities to play.

The agent in that case was clearly working for both player and club. The club decided they wanted that player, they reached out to the agent with the fees and conditions, the agent had to negotiate an acceptable deal between Club A and Club B on transfer fees and then sell the player that moving to Club A would be beneficial for his career.

3. Whatever it is – it’s not tax avoidance

Denis Healey, former Chancellor of the Exchequer once remarked the difference between tax avoidance and tax evasion is the ‘thickness of a prison wall’. In recent years we have seen the gap between avoidance and evasion narrow. A whole article could be written on the differences but essentially, I still think of avoidance like an extra-marital affair, not advisable – and there will be consequences – but it’s not illegal.

HMRC have a list of the hallmarks of a tax avoidance scheme:

  • It sounds too good to be true
  • Pay in the form of loans or other untaxed payments
  • Huge benefits
  • Round in circles or artificial arrangements
  • Misleading claims
  • A scheme reference number
  • Umbrella Companies

Source: Introduction to tax avoidance

Dual agent agreements meet none if any of the above hallmarks (and whilst these are just main features and it is possible for avoidance to be at play where these conditions are not met – this nonetheless remains a sound starting point). Maybe, if you subscribe to the view that the club has no benefit you could say that one of the above may be met. However, failing that there is no real way that the process by which the clubs pay the agents fall into tax avoidance in my view.

The report states ‘the defence of dual representation contracts by clubs is that “everybody does it”. That is not my defence. Indeed the practice hardly needs defending. As I have explained above, the practice is commercially justifiable, fiscally responsible and wholly legal.

Final Comments

It seems that the conclusion of ‘tax avoidance in football’ came first and then the report tried to make the evidence fit. There is no tax avoidance scheme here, there is no beginning and end, there is no money invested, no one is buying a package which is promising to save them a shedload of tax. This report is predicated on a fundamental misunderstanding of the industry and in tax we must first understand the fact pattern and then apply the tax treatment, not think about the tax treatment and manipulate the facts to support it.

About the author

Sofia Thomas is a Fellow of the Chartered Institute of Taxation, a regular lecturer on Sports Tax Issues, Head of Tax at Juno Sports Tax and the Chair of the International Sports Tax Association.

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