The Memo: The Barclays Premier League and tax

Cait Evans – 18 April 2023

A recent BBC Newsnight exposé, along with analysis by the Tax Policy Associates has revealed that as much as £250m in tax was avoided by Premier League clubs between 2019 and 2021, and £470m in total since 2015. Manchester City and Manchester United, the biggest spenders in the league, were also the biggest culprits, with £10.9m avoided, followed by Liverpool at £8m and Arsenal at £6.3m.

But how is it possible for the clubs to have avoided quite so much tax? It essentially boils down to the way agents are paid for their part in players’ contract negotiations. Typically, the player hires and uses an agent, be it an individual or a business, to represent them in all stages of the deal. The club covers the agent’s fees through a ‘benefit in kind’ (BIK) to the player, which means the player will be taxed as if they have received the agent’s fees as an additional salary. This leaves the player with net pay to give to the agent, of which the agent pays VAT to HMRC. To give some context to this, if a club has £1m spare for agent fees, £612k of this would go to HMRC and £388k would go to the agent.

A few years back, the clubs cottoned on to the fact that they could circumvent much of this tax through something called dual representation. This meant that they began to write contracts claiming the agent acted for both the player and the club, avoiding having to pay an enormous sum of money to HMRC. Following the previous example, the £1m the club had set aside for agents fees would now be split between direct payment to the agent and the rest through that BIK system. This effectively cuts the tax paid to HMRC by just under 50% (£276k to be exact) as the club only pays NI and PAYE tax on the £500k given to the player. Moreover, the agent does not pay any VAT on the £500k paid directly by the club. In short, the savings are enormous.

Much to the chagrin of the taxman, this scheme isn’t illegal. It is a form of tax avoidance, which is very different to tax evasion (which is against the law). Tax avoidance is where an individual or business structures their tax result in a way that is more favorable than the usual arrangement. But it is a grey area in this case. The reality of ‘dual representation’ is that the agent works for the player only, not the club. Additionally, though the Football Association prohibits the agent to act for both parties there are exceptions, namely where “explicit written consent is given” by both sides.

However, HMRC are not taking these arrangements lightly. In 2021 they issued guidance on dual representation contracts stating clubs would need to have evidence to show agents were acting for both sides of the deal. They have also stated they are currently investigating a number of clubs on the matter. Some have pointed out that it needs to go even further than retrospective action and that Parliament should enact tougher rules on income, NI and VAT taxes to make such schemes illegal concretely. This, it is argued, would also save time and the cost of litigation in courts against the stream of clubs across the league that are alleged to be engaging in this practice.  

If you're interested, you can read more about tax law here.