Today’s Blog concerns a football agent who received €4m for their part in an international transfer deal, zero-rated the transaction in their records, but then HMRC stepped in, demanding 20% VAT on the deal.
VAT & Football Transfers: Background
Sports Invest UK Ltd are a VAT-registered football agent in the UK and operate under the rules and guidance provided by the Football Association (FA). Their main activity was to act as an exclusive agent for various players and to advise and negotiate with football clubs regarding players transfers.
The FA provided a standard template agent agreement to Sports Invest, with one of the clauses specifying that they would receive a fixed percentage of a client’s wages. However, their business model was that they did not charge players fees and instead made all their money from the clubs themselves.
If the clause was deleted, it would result in the agreement having to be re-approved by the FA. So, Sports Invest instead coupled the agreement with a “waiver letter” stating that no fee would in fact be charged, which gave them the added benefit being able charge the fee at a later date, if the player did not uphold their side of the agreement.
VAT & Football Transfers: The deal in question
In the summer of 2015, Sports Invest took on Portuguese international João Mário, who was at the time signed with Sporting CD Lisbon. João Mário was provided with the standard FA agreement, as well as Sports Invest’s waiver letter. Subsequently, Sports Invest was approached by Inter Milan who were interested in signing João Mário. A deal was agreed between the three parties and Sports Invest provided paperwork to Inter Milan which stated a fee of €4m would be charged over a two-year period in exchange for brokering the deal and they issued an invoice for the first instalment of €500,000
Sports Invest treated the supply as a business-to-business supply of services, which meant that the place of supply for VAT was the country where the customer was based, with the customer being responsible for any local VAT. Accordingly, no VAT was charged on the €500,000 invoice nor the subsequent invoices.
VAT & Football Transfers: HMRC disagrees
HMRC argued that as per the FA standard contract, Sports Invest was due 10% of João Mário’s gross salary from Inter, meaning €3m of the amount received from Inter was actually indirectly from João Mário. As João Mário was not a business, the supply was business-to-consumer and so the place of supply was where the agent was based, namely the UK.
HMRC considered that as Sports Invest was UK-based, the €3m included £438,954 of VAT. HMRC also argued that the waiver letter had not been issued at the appropriate time and was therefore ineffective, and that even if it had waived the fee for João Mário, the extra clause stipulated that where the player doesn’t pay, the club must.
Sports Invest and HMRC were now at an impasse and so it went to the First Tier Tribunal (FTT).
VAT & Football Transfers: The Tribunal decides
The FTT considered the documents issued and agreed that Sports Invest had no right to the 10% commission due to the subsequent waiver letter. Further, as the fee had been waived, it could not then be sought from the club. Thus, any theoretical fees owed by João Mário had not been waived, rather the payment itself had.
The Tribunal then went on to consider whether, as HMRC suggested, at least part of the supply had been to João Mário. Whilst João Mário clearly did receive a service from Sports Invest, as they’d brokered the transfer from his old club to the new but concluded that as it was not a supply for a financial consideration, no taxable supply had occurred.
The FTT chair said that there was no evidence in the contracts to suggest that the €4m was in respect of anything other than services to Inter Milan, and nothing to suggest the payment was made by them on behalf of João Mário. The payment therefore related to the supply of services to Inter, not to João Mário and he concluded by stating that the place of supply was clearly Italy and therefore no UK VAT was due.
Tax Accountant’s view
Yet another unnecessary bloody nose for HMRC, when will they ever learn. As the Tribunal chair also pointed out, HMRC’s own Public Notices were crystal clear on the subject, so why did they waste time and money pursuing a case in which their own regulations meant they could not possibly win.