A sports agent by nature is a mediator or ‘go-between’ between the player, and in most instances, a sports club. In general, the agent provides a service, for example, the recruitment of a player, who will enter into a legal relationship with a club. Often a club will pay a sports agent a recruitment fee, which will normally include a signing-on fee that has to be paid over by the sports agent to the player. In this scenario, the question arises whether such signing-on fee is subject to employees’ tax (“PAYE”) and if so, where the obligation to withhold PAYE lies?
  
The correct withholding of PAYE is an important consideration in any business. One of the challenges in ensuring that one’s PAYE obligations are met, is the wide application of the definition of “remuneration” in the Fourth Schedule to the Income Tax Act 58 of 1962 (“Act”). “Remuneration” is defined as follows:

“means any amount of income which is paid or is payable to any person by way of any salary, leave pay, wage, overtime pay, bonus, gratuity, commission, fee, emolument, pension, superannuation allowance, retiring allowance or stipend, whether in cash or otherwise and whether or not in respect of services rendered, ...”

Signing-on fees by their nature are usually paid as an “enticement” to a player to contract with a club. We are of the opinion that the signing-on fee will be regarded as remuneration as defined above and will be taxable at the player’s marginal rate of tax. Since “remuneration” as defined in the Fourth Schedule to the Act will then be paid over by the sports agent to the player, could it be said that the agent is liable to withhold PAYE? It seems that this is not the case when one considers the definition of an “employer” as set out in the Fourth Schedule to the Act, which reads as follows:

“means any person (excluding any person not acting as a principal), ... who pays or is liable to pay to any person any amount by way of remuneration ...” (own underlining)

The Oxford English Dictionary defines a “principal” as “a person who is the chief actor in ... some action” or “a person for whom another acts as agent or deputy”. In our view, in the scenario set out above the sports agent is not acting as a principal in relation to the payment of the signing-on fee and is therefore explicitly excluded from the definition of an “employer” as defined in the Fourth Schedule to the Act.

The sports club will, however, fall within the ambit of the definition, and as an employer, will therefore be liable to deduct or withhold employees’ tax in accordance with paragraph 2(1) of the Fourth Schedule to the Act, from the signing-on fee and any other subsequent remuneration paid to the player. It is therefore important that this signing on fee is separated from the agent’s commission. The agent’s commission should not be subject to PAYE because an agent is typically carrying on a trade independently from the sports club and, as such, the commission paid to the agent is excluded from remuneration as defined.  
There are also other liabilities flowing from being regarded as an “employer” as defined in the Act, such as the obligation to make contributions to the Unemployment Insurance Fund and to also pay a Skills Development Levy.

Therefore, the sports club, as employer, remains liable to withhold employees’ tax from the signing-on fee.  Should the club fail to do so, the club’s only defence would be available in terms of paragraph 5(2) of the Fourth Schedule to the Act. This paragraph provides that where an employer has failed to deduct or withhold PAYE and the Commissioner is satisfied that the failure was not due to an intent to postpone payment of the tax or to evade the employer’s obligations, the Commissioner may, if he is satisfied that there is a reasonable prospect of ultimately recovering the tax from the employee, absolve the employer from his liability.

It is therefore important that when clubs sign on new players, the signing-on fee is contractually separated from the agent’s fee and that the obligation to withhold PAYE is understood.