Rahman Ravelli
Rahman Ravelli Solicitors Logo
Switchboard: +44 (0)203 947 1539

About Us Expertise PEOPLE International Legal Articles News Events Contact Us toggle button for phone toggle button for search

HMRC and benefits in kind

Author: Nicola Sharp  1 September 2022
2 min read

With HM Revenue and Customs investigating the tax affairs of hundreds of professional footballers, Nicola Sharp of Rahman Ravelli outlines the importance of meeting tax obligations relating to benefits in kind.

The equivalent of 1 in every 12 professional footballers has been investigated in the past year over tax.

Figures from HM Revenue and Customs (HMRC) show that it has tripled the number of investigations into footballers in the past 12 months, with 270 players investigated, compared with 93 in the previous year.

HMRC is reportedly assessing potential illicit payments to players, agents and third parties which enable payments of income tax and national insurance contributions to be avoided. This may mean that millions of pounds’ worth of tax could be going unpaid. HMRC's overall additional tax collected from investigations into professional football, through and up until year ending March 31, 2020, was £73.1million - more than double the previous £35.3m figure. Reports have stated that much of the HMRC’s interest is focused on benefits in kind.

What is a Benefit in Kind?

A benefit in kind (BIK) is anything of monetary value that is provided to employees that is not wholly, exclusively and necessary for them to perform the duties they are contractually obliged to carry out.

A BIK can be, for example, where a football club pays some of a player’s agent’s fee instead of the player or where the club foots the bill for accommodation for a player’s relatives or friends. Despite not going to the player, these benefits are taxable - and failure to pay tax on them could attract hefty penalties.

HMRC rules relating to BIKs cover many aspects of what could be called workplace perks. Such benefits fall into two categories – taxable and tax free. HMRC guidance states that employees should pay tax on company benefits like cars, accommodation and loans. These BIKs should be reported to HMRC on Form P11D each year, which provides a long checklist of all possible benefits.

The main legislation for the taxation of employment income can be found in the Income Tax (Earnings & Pensions) Act 2003 (ITEPA 2003).

Investigations

The near-tripling of the number of investigations of footballers for suspected tax avoidance has also led to 31 clubs and 91 agents being investigated. This is an indicator that it is not only the direct or indirect beneficiary of a BIK that could face problems in relation to such perks.

A failure to submit Form P11D or its late submission can result in penalties being imposed. Interest can be charged on those penalties where Class 1A NUC (employer’s National Insurance on chargeable benefits) is paid late. Where taxable benefits are not correctly reported to HMRC, the agency may invite employers to settle the income tax due and will hold employers responsible for interest charges and penalties. As a result, substantial liabilities could arise, particularly when non-reporting has taken place over a number of years.

The Correct Response

The number of investigations conducted by HMRC into football players, clubs and their agents is not likely to decrease in the near future. If the agency keeps finding evidence of non-payment of tax - and is able to recover huge amounts of it – it will not stop or scale down its activities until it is satisfied it has examined all possible areas of investigation.

This, it should be emphasised, will not only be the case when it comes to professional football. HMRC will dedicate time and resources to investigating any business sector where it believes there has been large-scale tax avoidance relating to BIK.

It is important, therefore, for all companies to take appropriate steps to identify, make clear and then meet their BIK tax liabilities. It is vital that key contractual documents explicitly address the tax liabilities and any indemnities relating to an employee – whether that be a footballer or any other person taken on as a paid member of staff at a company.

For individuals or companies already under investigation, the first step should be to instruct specialist lawyers to advise on the strategy and approach in response to HMRC’s investigation.

Nicola Sharp C 09983

Nicola Sharp

Partner

nicola.sharp@rahmanravelli.co.uk
+44 (0)203 910 4567 vCard

Download Profile PDF

View Profile

Nicola is known for her fraud, civil recovery, arbitration and business crime expertise, her experience of leading the largest financial disputes and multinational investigations and her skills in devising preventative measures and conducting internal investigations for corporates.

Share this page on