HMRC scores as football tax probes triple in one year

The number of HMRC investigations into the tax affairs of professional football players has hit nearly 250, with focus on image rights deals, UHY finds

Investigations by the UK tax authority into footballers’ tax affairs have jumped from 87 to 246 in the space of one year, according to UHY Hacker Young following a freedom of information request.

At the same time, the number of investigations into agents more than doubled from 23 in 2018/19 to 55 in 2019/20. A further 25 investigations were opened into football clubs over the same period, two more than last year.

The firm revealed that HMRC’s overall additional tax collected from investigations into professional football in year ending 31 March 2020 stood at £73.1m, more than double the previous £35.3m figure.

Through images rights deals, players are paid additional money on top of salary for the use of their image by the club, such as in advertising and endorsements. Often this money is paid to a company set up by the player and is only taxed at the 19% corporation tax rate, rather than a potential 45% income tax rate, which can be paid by the highest earning footballers.

In some cases, image rights companies are based offshore, which reduces the tax paid even further.

HMRC will investigate individual deals if it believes the amount paid for image rights is over and above the value that it believes the player’s profile is worth.

Elliot Buss, partner at UHY Hacker Young and a specialist in sports tax affairs, said: ‘If you are second-choice left-back in the Championship getting paid a great deal in image rights payments, then this is likely to trigger an investigation by the taxman.

‘You may have to make a robust argument to HMRC to show how the value of the image rights has been arrived at.’

Ensuring the correct amount of tax is paid across all income streams can be a tricky field to negotiate, especially for those professionals just starting out in the game.

‘Despite having a very substantial income, many young footballers don’t get the advice they need when it comes to tax,’ Buss said.

‘Often they don’t realise they need to pay tax on the fees that the club pays the agent on behalf of the player when they sign a new contract. That frequently results in errors, investigations and hefty penalties.’

An HMRC spokesperson said: ‘We're clear that everyone must pay what they owe under the law, regardless of their wealth, status or job. The department’s work in the football industry is a demonstration of this ongoing effort to help support the football industry and their members.

HMRC has been investigating football image rights deals for a number of years. Two years ago Accountancy Daily reported that HMRC’s football investigation unit had delivered £332m in extra tax by tackling non-compliance in the football industry.

The news comes as football finances remain under the spotlight. Deloitte’s latest review revealed that record revenues were accompanied by an increased disparity between the biggest football clubs and the rest within the Premier League, with the average revenue of the ‘big six’ clubs now at £500m, over three times that of the remaining clubs.

Wage cost growth outpaced revenue growth for the second season in a row, increasing 11% to over £3bn for the first time, resulting in a wages to revenue ratio of 61%.

Clubs’ spending on playing talent, through wages and transfer fees, was already set to reduce profitability in 2019/20, as it had in 2018/19. The Covid-19 pandemic will have had a destructive impact on profitability in 2019/20, as revenues fell dramatically and costs did not in the final quarter of the season.

Gary Ashford, partner and chartered tax adviser at Harbottle & Lewis, said: ‘One of the main problems is that some advisers treat every sportsperson, particularly footballers the same. Over time it has become “normal” to part remunerate them by way of image rights contracts.

‘Under UK law, when we mention image rights, we are actually talking about various intellectual property rights. This analysis is not considered in sufficient detail and so a “one-size-fits-all” approach can create significant problems for a player, or other sportspersons. It may well be the case that all their income or a significant proportion is employment income.

‘The situation can be even more complicated if the player is from overseas, and is being taxed as a UK non dom.’

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