Clubs could be forced to pay millions in extra taxes

Adjust font size:

English Premiership clubs might end up owing millions in extra taxes if a test case goes against Premiership club Newcastle United next month.

The case concerns the Value Added Tax that the club recovers on agents’ fees that come from player transfers. HM Revenue and Claims (HMRC) officials claim that money should be paid to the government.

Like all companies, football clubs are allowed to collect VAT taxes paid for goods or services that have a connection to their business. However, the HMRC claims the same rule does not apply to agents’ fees. The HMRC claims that when fees are paid to a players’ agent that the fees are acting for the footballer and not the club. Because the footballer is an employee of the club, the club should not be allowed to collect VAT.

The HMRC is not claiming any criminal wrongdoing. However, the effects could be far reaching, with nearly every large English club affected. Arsenal, for example, is paying close attention to the case because the HMRC claims the London club owes nearly GBP 700,000 in improperly collected VAT.

“The key issue is which party agents who are negotiating between players and clubs are acting for,” said a spokeswoman for HMRC. “The FIFA rules state that it must only be one. Clearly it cannot be both; there is a conflict of interest there.”

Some tax advisors feel the clubs have a strong defence.

“Another such case against Rangers in Scotland collapsed,” said Paddy Behan, the VAT director at Grant Thornton, a British financial firm. “There was a ruling by the VAT and duties tribunal, known as the Redrow case, in which VAT was recovered legitimately. This might be considered a precedent.”

The HMRC’s claims are the first signs that government-taxing agencies are taking a closer look at clubs’ transfer dealings, which involved great amounts.

“We have investigators within a special compliance unit looking into football nationally,” added the spokeswoman. “Part of our job is to look at threats to the Exchequer. Where there is substantial risk of a loss to the Exchequer, we will act very quickly. In August 2004 the government brought in new rules ensuring a more targeted response from us; football was definitely included in that strategy; we carry out regular visits to Football League and Premiership clubs.”

Tax advisers argue that since head-hunters – who find jobs for individuals – are not subject to the VAT refund, the same should apply to agents.