HMRC internal manual

Employment Income Manual

Tax treatment of Association footballers: share of transfer fee

A transfer fee is a payment made by the old club on transfer of a player from one club to another. These payments can arise in both Association and Rugby football. They are chargeable to tax provided you can show that, in relation to the particular club concerned, the payments “though not obligatory, are expected, are generally asked for, and are usually accorded” (Corbett v Duff (23TC at page 778), see EIM00640). This will usually be the case as regards Association and Rugby League footballers. Such payments are taxable even if they are illegal under the Association or League rules.

The same principles apply in relation to payments to professional Rugby Union footballers. However, overt professionalism in that sport is relatively new. The existence of a custom, where one exists at all, will therefore be less easy to demonstrate.

In the rules of the Scottish and Irish Football Leagues the shares of transfer fees paid to players are described as payments by way of reward for loyal and meritorious service. Under the Southern Football League rules the payments are regarded as shares of presumed accrued benefits. In all cases, the amount is generally based on the number of years and fractions of years of a qualifying period of service with that club. Where a share of a transfer fee is paid to an Association player by the old club see EIM64135.

In the English Football League, transfers between clubs entail the new club paying the League a levy of five per cent of the transfer fee. Signing-on fees are payable to the player at the discretion of the new club and will normally have been agreed between the player and the new club during transfer negotiations. The signing-on fee payable to the player is stated in the contract and is normally payable by equal instalments over the period of the contract, which may sometimes include the period over which there is an option to extend the contract.

Where the player is subsequently transferred at the request of his club, any unpaid instalments of the earlier signing-on fee are payable immediately. But where the player requests a transfer he forfeits any such unpaid instalments unless the management committee is satisfied that his transfer request was made on reasonable grounds.

Instalments of signing-on fees are chargeable to tax on receipt.