Do clubs have to pay VAT on transfer fees?

[Juggy 0]

Has anybody ever asked this question before? It is a sale from one business to another, so if we sold Ruddy for £10m would we have a VAT liability of £2m? 

[Houston Canary 0]

We wouldn''t be the ones buying and certainly not getting any value added by selling him so I''d say a resounding No to your query.

[Jack Barak 46]

A legal contract is not a VAT''able item so no, we may realise a profit on an intangible asset or at the very least a trading profit subject to CT but not VAT.

[Lets be aving you! 0]

Good question.

 

Found the following answer from 2008 on a tax forum, but cannot vouch for its accuracy (I guess the 17.5% rate mentioned is now 20%).

 

"The transfer of footballers is subject to VAT in the same way as any other goods or services. Domestic transfers in the UK are taxable at the 17.5% standard rate. However, transfers between football clubs in the EU are relieved of VAT. Sales from a UK club to a buyer outside the EU are also free of VAT, although if a UK club buys a player from outside the EU it must account for VAT on the purchase.The transfer window has no real effect on the VAT position. If a club has a December VAT period, but wants to buy a player in the first week of January it could bring the tax point forward by requesting a VAT invoice from the selling club on 31 December. Of course, this might meant that the selling club has to pay its VAT three months earlier.Read more at http://www.taxationweb.co.uk/forum/football-transfers-t22078.html#2cTOhj8Ryu5jws4r.99"

[BroadstairsR 2,138]

Would the £10m be VAT inclusive or plus VAT?

 

If these transfers do include VAT (interesting point) then as a net buying club, by some distance, over the past few seasons we would have had a lot of VAT to claim back.

 

By the way, what is the VAT rate in Portugal? 

[Juggy 0]

[quote user="Houston Canary"]We wouldn''t be the ones buying and certainly not getting any value added by selling him so I''d say a resounding No to your query.[/quote]

That''s not the way sales tax works in the UK, the seller is responsible for paying it. 

[Juggy 0]

[quote user="Lets be aving you"]

Good question.

 

Found the following answer from 2008 on a tax forum, but cannot vouch for its accuracy (I guess the 17.5% rate mentioned is now 20%).

 

"The transfer of footballers is subject to VAT in the same way as any other goods or services. Domestic transfers in the UK are taxable at the 17.5% standard rate. However, transfers between football clubs in the EU are relieved of VAT. Sales from a UK club to a buyer outside the EU are also free of VAT, although if a UK club buys a player from outside the EU it must account for VAT on the purchase.The transfer window has no real effect on the VAT position. If a club has a December VAT period, but wants to buy a player in the first week of January it could bring the tax point forward by requesting a VAT invoice from the selling club on 31 December. Of course, this might meant that the selling club has to pay its VAT three months earlier.Read more at http://www.taxationweb.co.uk/forum/football-transfers-t22078.html#2cTOhj8Ryu5jws4r.99"

[/quote]

Wow! No wonder so many clubs go under with HMRC debts then, puts a new perspective on the huge tax bills that clubs owe when they go into administration. 

[Juggy 0]

[quote user="BroadstairsR"]

Would the £10m be VAT inclusive or plus VAT?

If these transfers do include VAT (interesting point) then as a net buying club, by some distance, over the past few seasons we would have had a lot of VAT to claim back.

By the way, what is the VAT rate in Portugal? 

[/quote]

That''s a good point also, we get the liability reduced due to money spent. Wouldn''t this be a good reason to buy a UK replacement though? E.g. Fraser Forster for £5m, would leave us owing £1m instead of £2m. 

[Juggy 0]

[quote user="Sir Humphrey Appleby"]A legal contract is not a VAT''able item so no, we may realise a profit on an intangible asset or at the very least a trading profit subject to CT but not VAT.[/quote]

But every sale is just a contract between two parties? When you go into Phones4U and buy an iPhone, that''s just a contract, but you still pay VAT on it. May be that legal services are exempt from VAT (so use of legal representation), but every sale is a contract in some form? 

[Redders Right Foot 22]

you''re not paying VAT on the contract, you pay it on the service and whatever money was due at signing on the phone.

if you cancel a contract with a phone carrier, you DO NOT pay VAT.

you end up paying a S**T ton depending how long is left on the contract, but not VAT.

[Redders Right Foot 22]

and also, not every over the counter sale is a ''spoken contract'' for it to be a contract, it has to meet specific elements.

[Juggy 0]

[quote user="Javiers Deaf Translator"]you''re not paying VAT on the contract, you pay it on the service and whatever money was due at signing on the phone.

if you cancel a contract with a phone carrier, you DO NOT pay VAT.

you end up paying a S**T ton depending how long is left on the contract, but not VAT.[/quote]

I''m trying to get my head around how this would mean that we wouldn''t have to pay VAT when selling the player registration rights of John Ruddy though. I guess we are actually selling ''property'', but even if you sold a house you are subject to stamp duty and capital gains tax if you owe more than one. Capital gains tax on John Ruddy would work out almost as much as VAT would.

The closest thing that I can relate a player transfer to is the sale of a lease or a freehold, because you are effectively selling the legal right of ownership. Makes me wonder whether we are actually liable to capital gains tax on the profit rather than VAT, but really can''t imagine there being no tax liability at all. If there isn''t then there really should be one in place. 

[Juggy 0]

Obviously a club will pay corporation tax on any ''profit'', if they make one, but very few manage to make one of those. If there is no tax whatsoever to be paid on transfer fees them perhaps a transaction tax should be introduced, because the country is broke and football is full of money. 

[Gnasher 0]

I can tell you that when a transfer bid is made for a player i.e. a fee of £8m, the actual figure is VAT inclusive

[Colourful Canary 0]

A quoted transfer fee would normally be VAT inclusive, which means the 17.5%VAT is part of the £10m not 17.5% on top. People forget that although the club would be liable to VAT on any player sale within the UK , because they are VAT registered they are also entitled to reclaim the VAT on any player purchased within the UK. Thus they would only pay a net amount of VAT to HMRC if their sales exceed their purchases i.e. if they are making a profit. They may also be liable to Capital Gains Tax if an asset (a player for example) increases in value. This all strikes me as very fair, because it should be the clubs making the biggest profits who should pay most VAT.

[Juggy 0]

[quote user="Colourful Canary"]A quoted transfer fee would normally be VAT inclusive, which means the 17.5%VAT is part of the £10m not 17.5% on top. [/quote] 

VAT has been 20% for a few years now! 

[quote] This all strikes me as very fair, because it should be the clubs making the biggest profits who should pay most VAT. [/quote]

But that means the biggest clubs pay the least /none at all, because they spend more than they recoup, while clubs down the pyramid like Peterborough will end up with substantial tax bills, £600k for Ryan Bennett for example, which is a huge amount for a club their size. So strikes me as a little unfair personally. 

[Houston Canary 0]

Ok so here the seller pays the tax. I learned something today. Thanks.

Even so, by the time accontants have done their job showing a club had a net loss for the year, much or all of any tax it might be expected to pay will be written off, I imagine.

[Juggy 0]

[quote user="Houston Canary"]Ok so here the seller pays the tax. I learned something today. Thanks.

Even so, by the time accontants have done their job showing a club had a net loss for the year, much or all of any tax it might be expected to pay will be written off, I imagine.[/quote]

VAT is actually a really backward tax because it isn''t directly linked to profit. 

If a business spends £100,000 on UK goods and services in a year, and has £200,000 of UK revenue, then it will owe 20% VAT on the £200,000 (so £40,000) but will then deduct 20% of £100,000 (£20,000)..... so it would owe £20,000 to the tax man.

[It's Character Forming 1,160]

For my sins I advise on tax for my day job so thought it would only be polite to reply, thanks to the OP for the question.

VAT works so it is really paid by the end consumer - that''s you and me folks. A business that is VAT registered and charges VAT to customers can recover all the VAT it pays out on business expenses. So while VAT is charged on transfer fees, the clubs can recover it (there might be a cash flow effect in that the club might have to pay VAT and recover it later but that''s all).

So if we pay £3m for a player it''s actually £3m plus vat (20% = £600k) but we then claim it back ditto if we sell, we charge Vat on top and pay it to HMRC and the buying club can recover it.

In practice each quarter you just deduct the vat you have paid to other, from the Vat you have charged, and pay the difference to HMRC (or even claim a refund).

The club charges Vat on tickets etc to you and me, we can''t claim the Vat back, so we are the ones who pay the Vat in the end.

There are complicated rules for businesses that don''t charge Vat and as for Vat on land transactions - don''t get me started. It keeps me out of mischief !

[Vazzza 62]

Taking this thread off course (for which I apologise as its interesting reading), someone explained to me the other day that when you hear a player is paid £100,000 per week, this is actually after any TAX they have to pay on earnings (50% at that annual salary I believe, so they are actually earning £200,000 pw). Does anyone know if this is correct?

[It's Character Forming 1,160]

PS to answer Houston Canary''s comment.  VAT is paid by the customer, e.g. if you buy a ticket to see City play, the price you pay will include VAT.  The club is then responsible for pay the VAT to HMRC (but net of any VAT the club can recover - however, if you follow the VAT back along the chain, HMRC end up getting all of it). 

 

You might ask, why bother with VAT compared to a simple sales tax ?  Well, there are two advantages for the tax man.  First, VAT is only recoverable by businesses which charge VAT to customers.  Any businesses which don''t charge VAT (e.g. they make VAT-exempt supplies) can''t recover the VAT - for example, care homes.  So those businesses end up unable to recover the VAT charged to them, which a simple sales tax on sales to consumers wouldn''t catch.  Second, HMRC can look at two ends of the transaction and make sure no one is fiddling.  E.g. if we pay £3m + VAT to Birmingham, we''ll recover that VAT and it will show in our VAT records, so HMRC can then look and make sure Birmigham have also shown £3m + VAT in their records and included the £600k VAT in their VAT return.

[BroadstairsR 2,138]

Non-VAT businesses, and I am not up to speed with the latest threshold, might not be able to claim the VAT that they have paid but the full amount (ie. cost + VAT) is included as expenses in their annual profit (and loss) accounts. They therefore recover some of  the VAT back this way ...... the amount being dependent upon the rate of tax they pay.

 

I believe.

 

I used to invoice non-VAT rated businesses who always complained about the VAT they paid. I told them that they recovered it back via their annual accounts. Was I correct?     

[It's Character Forming 1,160]

[quote user="BroadstairsR"]

Non-VAT businesses, and I am not up to speed with the latest threshold, might not be able to claim the VAT that they have paid but the full amount (ie. cost + VAT) is included as expenses in their annual profit (and loss) accounts. They therefore recover some of  the VAT back this way ...... the amount being dependent upon the rate of tax they pay.

I believe. I used to invoice non-VAT rated businesses who always complained about the VAT they paid. I told them that they recovered it back via their annual accounts. Was I correct?     

[/quote]

 

Yes this is right.  If a business isn''t registered for VAT, then as you say it can''t claim back any VAT charged to it.  But, if it is making profits (only ) then it will be able to deduct the amount it pays, including VAT, for business expenses from its profits and pay less tax as a result.

 

E.g. if a profitable small company which isn''t VAT registered pays an expense of £100 + VAT, it has to pay out £120 and can''t get the VAT back.  But it saves corporation tax at the small companies rate of 20% on the £120 - so effectively gets back £4 of the VAT indirectly. 

 

Whereas when City pays out £100 + VAT, it gets all of the VAT back directly.  It can then reclaim the £100 against its profits for tax in the usual way (I think transfer fees get claimed back over several years but I don''t have any football clubs as clients so don''t know off the top of my head !).