English football agent regulations bring uncertain tax consequences

The Football Agent Regulations (FAR) entered into force on 1 January 2024, delayed from the original implementation date of 1 October 2023 after a number of football agents brought arbitration proceedings in the UK on the basis that they were unlawful. Confusion abounded as the January transfer window opened because The FA released an amended version of the FAR 31 December 2023 while legal challenges to FIFA’s Football Agent Regulations (FFAR), which underpin the FAR, continue elsewhere around the world.

While some of the most significant tax-related changes introduced by the FAR are yet to enter into force, HMRC has been focusing its attention on the tax consequences of football agency relationships – particularly dual representation agreements, where an agent acts for both a player and a buying club – for some time. Clubs should ensure that their records are robust, providing evidence of services provided to each entity, to ensure compliance.

How is football agent regulation changing?

The FAR are The FA’s national implementation of the FFAR, governing the conduct of football agents. The FFAR were introduced in phases: on 9 January 2023, for articles relating to the processes for obtaining licences; and on 1 October 2023, for remaining articles relating to acting as a football agent and the obligations of football agents and their clients.

The FFAR made four controversial changes to the regulations applying to football agents, all of which were challenged in the UK arbitration proceedings:

• a 3% fee cap on agents’ commission (the ‘fee cap’);
• an obligation for agents’ commission to be paid over the life of a player’s contract (the ‘pro rata rule’);
• a rule preventing contractual arrangements that provide for payments to be made on behalf of the client, rather than directly by the client (the ‘client pays principle’); and
• a rule preventing dual or multiple representation, so that an agent may not represent both the releasing club and another party, i.e. the player or engaging club. Dual representation between the engaging club and the player will be permitted subject to certain conditions including written consent (the ‘dual representation rule’)

In the UK arbitration proceedings, the agents were successful in their challenge against the fee cap and the pro rata rule. The arbitral award is final and binding, so these rules cannot be brought into force in relation to UK transactions.  The agents were unsuccessful in their challenge to the client pays principle and the dual representation rule.

However, that is not the end of the story: legal challenges have been brought elsewhere around the world, most notably in Germany, Spain and Brazil. In the German proceedings, a preliminary injunction was issued which prohibits FIFA from enforcing the FFAR until a ruling has been issued by the Court of Justice of the EU (CJEU). On 30 December 2023, FIFA confirmed a worldwide temporary suspension (3-page / 96KB PDF) of the FFAR rules affected by the German court decision pending a final decision by the CJEU.

So, from a UK perspective, the fee cap and pro-rata rule will not come into force at all, but, for now at least, the client pays principle and the dual representation rule are also not in force in the UK. The version of the FAR released by The FA on 31 December 2023 contains grey-shaded sections to reflect the parts of the regulations that are temporarily suspended.

What are the consequences for English football clubs?

In the UK, HMRC has been focusing its attention on the tax consequences of dual representation agreements where the agent acts for both the player and the buying club – typically in relation to player contract negotiations on transfer or extension – for some time. It has been actively challenging whether the apportionment between ‘club services’ and ‘player services’ accurately reflects what was actually done – in short, HMRC will not accept a 50/50 split as standard and will want evidence to support that apportionment.

Dual representation agreements between player and buying club are likely to continue to be used in the UK, given that both the FAR and FFAR include carve-outs where consent from the parties is given. HMRC is therefore likely to continue to enquire into the underlying details of these agreements for years to come.

Even if dual representation agreements are eventually prohibited – or phased out upon implementation of the dual representation rule – the delay in waiting for the CJEU decision could be significant meaning that they may continue to be in use for some time. Agents, clubs and players should consider carefully the representation agreements they enter into going forward.

In addition, while the FAR rules are regulatory rules for agents, clubs and players, the client pays principle, if introduced, will likely have significant tax consequences.

The typical position we see under a dual representation agreement is that the player services element of the fee due to the agent is: paid directly to the agent by the club; recorded as a benefit in kind on a player’s P11D; and taxed – income tax and employer’s NICs, but not employee NICs, with the player often paid a bonus by the club to cover the amount of tax to be paid by the player on the benefit received. This arrangement will no longer be possible if the client pays principle is implemented. 

This will have a number of consequences. First, the player will need to pay the agent themselves out of their net pay as the club would no longer be able to do so on their behalf. This will mean that the amount previously paid by the club on the player’s behalf will no longer appear on the player’s P11D as a benefit. It is likely that the player will want to be reimbursed for the fees they have to pay, so it is likely that clubs will have to pay increased remuneration on a gross basis – likely in the way of bonuses – to cover the agent’s fees for player services. Since the increased remuneration will have to go through payroll, employment taxes will have to be paid, including employee’s NICs as well as income tax and employer’s NICs.

Accordingly, introduction of the ‘client pays’ rule will cost more for both the player (by way of employee NICs payable through payroll) and the employer (by way of gross up on the additional employee NICs). There are also potential VAT consequences where the arrangements are cross-border.