Dual Representation and HMRC’s current approach

Dual representation has been an area of focus for HMRC for some time, and it published supplementary guidance on 13 May 2024, to assist with the reduction of filing errors.

What is Dual Representation?

Typically, a footballer is contracted to and represented by an agent who negotiates contracts and transfers, to allow the player to focus on sporting matters. When a player is subject to a football club transfer, the club buying the player must liaise with the player’s agent to progress the transfer. While the agent is acting in the interest of the player under their contract, he will effectively be a middleman, working with both sides to reach the desired outcome of a successful transfer.

Therefore, during contractual negotiations, agent services will be split between the player and purchasing club – This is referred to as dual representation. The purchasing club pays the agent for their services to both club and player, as part of a successful deal. An interesting point to note is that multiple representation (where the same agent represents the player, the buying and also the selling club) has been outlawed within the new FA regulations.

For the exchequer, the tax consequences of payments within a dual representation contract have a different tax treatment. Specifically, VAT on the fees paid to the agent, in respect of the club, can be reclaimed. However, those in respect of the player cannot as those services were not received by the club. In addition, the payment in respect of the player is subject to Income Tax and National Insurance Contributions (NICs), whereas the club payment is not. It can be seen that a dual representation contract can significantly lower tax liabilities overall as compared to the agent representing the player alone.

Why is HMRC so interested?

Put simply, it is an area of interest for HMRC, due to the vast amount of money generated by the football industry, and also the potential for avoidance and abuse within it. In the 2022/23 year, the Premier League alone generated a record £6.1 billion. The money in football is increasing year on year, including transfer fees and wages. Therefore, small mistakes can lead to significant tax losses.

Football deals and transfers also carry a level of complexity, as there are multiple parties involved, which can involve several countries and even more than one representative for a player. Accordingly, this complexity can make it easier for errors to occur.

HMRC has a dedicated team focussing on UK football and associated tax issues. In relation to dual representation specifically, any fees that are said by the agent to be performed on behalf of the club, but actually relate to services for the player, would avoid tax. Tax Policy Associates estimated that in 2021, £81m of tax was avoided in this way within the Premier League.

Dual representation and HMRC’s current view

HMRC accepts that dual representation exists to a degree in football but has always been keen to publicise the tax risks around dual representation. Due to the amount of errors and potential avoidance it is seeing in the industry, it has now adopted a stricter approach to clubs and players, and their ability to justify and prove the split of the agent services. As the updated regulations highlight, HMRC will not be accepting an automatic 50/50 split, as has been standard practice within football.

HMRC’s view is that an agent is primarily representing the player, with a much smaller part of their role being to represent the club in negotiations. HMRC’s updated guidance sets out a raft of information and evidence that must be collated and retained, in order to support the true contractual and commercial nature of the agent’s relationships.

This includes documenting evidence supporting the extent to which duties are carried out for each party, including the purchasing club’s requests for the agent to provide the club with services, and the specific services and agreements from each party, for the agent to enter into a dual representation contract.

Crucially, HMRC has stated that it expects much of this evidence, where possible, to be dated prior to any services being provided. HMRC has commented that dual representation documents, which are dated on the same date as the player’s contract is signed, are an indicator that dual representation may not reflect the commercial reality. This is key, as HMRC’s inference here is that the dual representation is an afterthought and not a genuine arrangement that had taken place throughout the negotiations.

HMRC’s updated guidance also includes a specific section on family members of players acting as intermediaries, stating that they have taxable responsibilities and should follow HMRC’s approach to dual representation, as set out in the guidance.

It is clear that HMRC sees dual representation as a key issue and it will continue to focus on this. HMRC’s guidance on this subject has been updated several times in recent years and we expect this is a result of HMRC’s compliance activity involving the football industry, and the errors and abuse it uncovers.

Gathering and retaining supporting evidence for agents is now paramount, if it wasn’t already, given the amounts which can be at stake in high-profile deals. HMRC’s guidance clearly expresses concern over such arrangements and its message is: prove it. We expect to see HMRC investigating more agents and such investigations can take place years after the deal took place; having all of the supporting evidence in place will ensure the commercial reality can be proved, should the need arise.

Correcting an error

If you are involved in the football industry, whether you are a player, an agent to a player, or a football club engaging in contractual agreements, it is essential to understand the updated HMRC guidance surrounding dual representation.

It is important to read the updated guidance HMRC has published to ensure you are compliant and maintain the evidence required by HMRC. If an error is identified in your tax filings, we would urge contacting a tax professional with experience in this area, at the earliest possible opportunity to minimise your exposure. Making a voluntary disclosure to HMRC, rather than waiting to be contacted, will mean you would benefit from the lowest possible penalties, in many cases no penalty at all, and can avoid the need for a protracted HMRC investigation.

Should you require any assistance, please do not hesitate to contact Danielle Ford, Partner and head of Tax Disputes & Resolutions or Riocard Hoye, Senior Manager.