There is a significant rise in the number of HMRC investigations into football players and agents.

This is the result of research done by chartered accountants UHY Hacker Young. HMRC have found there are a growing number of potential cases of tax avoidance within the industry and are cracking down in order to save the country money.

In 2019-20, 246 footballers were investigated by HMRC. That’s a substantial increase from the 87 of the previous tax year.

Footballers’ image rights

‘Image rights’ allow football clubs to sell club and sponsors’ merchandise using the ‘likeness’ (photo) and name of the players. Each player negotiates their own contract for their image rights.

These are separate deals to their employment contract and have nothing to do with their salary. It’s not all lumped in together, but exist as two separate financial entities.

Tax loophole around image rights

This is where the potential for tax avoidance raises its head.

Lots of football players set up a company to receive the money they get form their endorsements and advertising. Why do they do this? A company pays 19% Corporation Tax on its profits. A top tier footballer will be paying 45% additional rate income tax. So, by putting their income from the sale of their image rights into a business, they save themselves 26% tax.

It’s important to say that there is nothing illegal about this and, for some, its good money management. They are both employed as a footballer at the club and have a business making money through the sale of their image rights.

The problem is that an increasing number of lower status players are starting to get big numbers for image rights deals. HMRC has to question if they are getting paid in that way, rather than as a salary that’s liable for income tax.

For top international players, it makes absolute sense that they command high prices for their image rights. Not so much for an unknown that spends most of their time on the bench.

A Partner at UHY Hacker Young, Elliot Buss, says: “HMRC believes that lots of lesser-known footballers are effectively avoiding tax by getting paid huge sums for image rights that HMRC views as overpriced. The image rights of the likes of Paul Pogba and Mohamed Salah are undoubtedly worth millions of pounds a year. However, 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.”

Fair’s fair.

Football agents

When a club buys a player, they pay the player’s agent a fee. Now this fee is actually paid by the player as part of their new transfer contract. Confusingly, it goes to the agent straight from the club, but the player is liable to pay tax on this amount. At the top end, we’re talking about millions of pounds here. And if the tax is not paid properly, investigations and enormous fines follow.

Mr Buss comments: “Despite having a very substantial income, many young footballers don’t get the advice they need when it comes to tax. 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.”

Which of us did have our heads around the tax system when we were 19 or 20?

The suspicion that this is widespread has seen HMRC increase the number of investigations into football agents by 32, to 55 in 2019-20 tax year.

Is it really worth investigating?

While there are only a limited number of players and agents at the top end of football, the amount of money involved is astronomical. HMRC’s investigations put £73.1m back into the government’s bank account in the last tax year. Just from investigations into footballers and football agents. In the year prior, this was only £35.3m.

The number of individuals involved may be small, but the payoff in recovered tax – whether it was avoided deliberately, or by mistake – is definitely worth HMRC’s time and effort.