Being a professional footballer has many benefits that are obvious to all. Although these perks are desirable, the main ambition of footballers, in our experience, is to reach the upper echelon. It will be their performance both on and off the pitch that will dictate whether a player’s dreams can come true. Due to the competitive nature of professional football at the elite level, players will seek to improve their performance on the pitch by off field activities – the extra 1%.
We, as tax advisors, have seen the following (but not limited) costs incurred by players:
Unfortunately, many of the 1% costs incurred are not deemed to be allowable employment expenses due to the nature of the expenses- something that will be covered later in the article.
Background
It could be argued that that the extra 1% costs incurred by professional footballers is to abide by the stipulations of their employment. Let’s take fitness as an example:
Professional football contracts state the player is required to be fit – the clause specifically states players have an obligation to maintain a ‘high standard of physical fitness’ at all times and not to indulge in any activity, sport or practice which might endanger such fitness or inhibit their mental or physical ability to play, practise or train.
What is deemed to be a high standard of fitness? Is the fact a player is training at the club 4 times a week a possible metric to meet that condition? Does the player need to do more as they are not only competing with teammates but with an opposing team?
If a player is coming back from a serious injury, their training regime would be considerably different so how does that fit into the discussion?
It could be considered foolhardy to attempt to quantify a ‘high standard of physical fitness’ and given the grey area it is understandable players seek additional training outside of what is required of them at their clubs. Is this seemingly a requisite not only to keep them within the squad but also to ensure they are in the starting 11?
The additional income benefit
The extra 1% is for a player to be at the elite level. Being on top of their game will result in:
It can be argued that the extra income outweighs the additional 1% cost – this is of benefit to HMRC as higher PAYE/NIC is it not?
Tax Legislation & income guidance
The most common question the HW Fisher Sports Group are asked every year by either players or their representatives is, what employment expenses can be claimed on a professional footballers Self-Assessment Tax Return?
The answer to that question is ambiguous as tax legislation and HMRC’s guidance does not specify the exact employment expenses that would be allowable for professional football players.
It is important to understand why the 1% costs are not allowable as employment expenses and HMRC’s interpretation of the legislation.
The phrase “wholly, exclusively and necessarily’ is cited in tax legislation and included within HMRC’s Employment Income Manual (EIM31660) as a means to determine whether an expense can be claimed as a tax deduction.
1. Wholly- The expense must be incurred entirely for their trade and personal (indirect) benefit of the expense may disqualify the entire claim.
2. Exclusively – The expense should be for the exclusive purpose of their trade. If the cost is incurred deliberately so the player can benefit privately, then the entire cost may not be allowed.
3. Necessarily- The expense must be essential for carrying out employment duties. Often, HMRC will request to see evidence that employer’s require such a cost to be incurred.
As you may appreciate, the above criteria narrows the scope for virtually any costs to be claimed, including those were there is unintended and incidental personal benefit.
Disallowable Costs
The most common expenses incurred are directly linked to maintaining fitness and health. Due to the nature of elite football and the relatively short careers of player, many will incur costs to maintain their peak fitness and health which translates to performance on the pitch.
As one can appreciate, these costs may not attract tax relief in full under the HMRC’s and the legislation criteria as there is a glaringly obvious (intrinsic) dual purpose. However, it can be argued that the private benefit is incidental to the main purpose and so a reasonable apportionment would seem a pragmatic approach.
Interestingly, HMRC can also take the view that if the expense is not necessary to all employees in the trade then the costs won’t be allowable in full. This goes back to the point made earlier in this article, recovery training from injury is markedly different from training before a match- not all player injuries are the same!
Tax advisors have the challenge of justifying to HMRC that a proportion of the cost incurred relates to employment duties. However, HMRC may ask for a breakdown of the costs and the need to substantiate the claim via invoices. Often, it is necessary to paint a picture so HMRC can understand the context of specific expenditure.
Based on our experience this is often a contentious point with HMRC. It could be said that a professional footballers’ self-assessment tax returns are more closely scrutinised by HMRC; this could be due to the ‘high profile’ nature of the footballing industry and of course the large amounts at stake!
It is common for HMRC to open compliance checks (enquiries) into professional footballer’s tax returns where employment expenses are claimed. Therefore, careful consideration should be given and each situation presents a unique claim- one rule for one and another rule for others.
We have also had difficult conversations with clients where previous tax advisors have claimed employment expenses which we are aware HMRC will strongly contest. Our unique insight into HMRC’s football unit gives us an advantage.
Allowable Costs
So what can be claimed?
The costs of purchasing new football boots is entirely reasonable as there is a fair argument that the costs meet the “wholly, exclusively and necessarily” criteria – in what other setting would a player use the boots?
Critically, employment expenses can also be claimed when a footballer attends a temporary workplace, such as a loan spell. During the period, a claim for employment expenses can include (but is not limited to) the following:
A tax break during these periods is particularly welcome and full advantage should be taken where appropriate.
Summary
Based on our experience, many of the typical extra 1% costs incurred by professional footballers are not allowable employment expenses.
It is important for professional footballers and their representatives to be aware of the expenses that may be allowable. Many of the additional 1% costs can be quite significant and therefore care should be exercised when reviewing the position.
The term “wholly, exclusively and necessarily” is key when deciding if a cost can be claimed as an employment expense. A reasonable apportionment can be considered but duality of purpose is always an issue.
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