What are image rights in football and how are they taxed?

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In light of recent coverage of issues relating to footballers’ image rights and the related tax issues, the sports team at Mills & Reeve have put together a summary outlining key legal issues.

In light of recent coverage of issues relating to footballers’ image rights and the related tax issues, the sports team at Mills & Reeve have put together the following summary outlining key legal issues. By using a Q&A format, we hope that this will prove to be an easily accessible resource for those looking to understand these complex legal issues.

What are image rights?

In a football context, image rights are, simply put, the player’s likeness – that is, his image, his name, his nickname, his voice, his signature, and all other characteristics unique to the player.

Image rights deals enable the player to exploit that likeness for commercial value, i.e. through sponsorship and endorsement activities.

If the player’s image has independent commercial value, then the player will often seek to create an image rights company (IRC).

Why would a footballer set up an image rights company?

There could be tax benefits involved in setting up an IRC. While the player’s wages will be taxed at 45%, the license fee paid by the club to the IRC is taxed at corporation tax rates, which are currently set at 20% (in the near future, this rate may be reduced to as low as 15 per cent).

As an example, a player earning £5,000,000 per year in basic salary without an IRC would take home £2,650,000 after taxes (including national insurance contributions).

If that same player took a £4,000,000 basic salary and a £1,000,000 licensing fee was negotiated between his IRC and his club, there would, overall, be less tax (around £270,000 per year) to pay now. However, for a UK player with a UK IRC, there may be additional tax to pay in future.

Are image rights deals legal? What is the HMRC’s position?

Image rights deals are perfectly legal. However, when structuring IRCs and entering into image rights deals, it is strongly recommended that players (and clubs) seek legal and tax advice.

Under the existing agreement between the Premier League and HMRC, Premier League clubs may not spend more than 15 per cent of their overall commercial revenue on separate image rights deals with their players.

Additionally, the value of the image rights deals between Premier League clubs and players’ IRCs are generally restricted to a maximum 20 per cent of the player’s overall remuneration package. There may be situations where a superstar player with exceptional image rights value may be able to convince the HMRC to approve a deal worth more than 20 per cent, but this would be the exception to the rule.

What is the difference between tax avoidance and tax evasion?

Tax avoidance is the utilisation of legitimate means to minimise tax liability. Tax avoidance is legal.

Tax evasion is the utilisation of illegitimate means to avoid paying taxes. Tax evasion is illegal.

Is it legal to structure image rights deals with an offshore component?

For players that are UK residents and domiciled in the UK for tax purposes, there is unlikely to be any benefit in having any offshore components to their image rights deals.

However, for players who are not domiciled in the UK, it is legal, and may indeed be preferable to establish an IRC in the UK for UK rights and an IRC outside the UK for non-UK rights.

How should image rights deals be structured in order to ensure compliance with tax regulations?

A carefully structured image rights deal is not only legal, but is a well-known and uncontroversial way for a player to exploit the commercial value of his own image. It is not essential for the structure to involve a company, but it makes sense for a player to use a limited company in the same way as any other person engaging in a business.

The important point is that the arrangements are entered into for commercial purposes, and not simply to reduce the player’s tax bill.

If players or agents have existing image rights structured involving tax havens and have concerns about their legality, what should they do?

It is essential to take professional advice as soon as possible to ensure the position can be resolved with HMRC.

Mills & Reeve regularly act for high-profile footballers on tax matters and image rights deals. For enquiries or to request a detailed briefing on image rights structures in football, please contact Carol Couse or Chris Belcher.

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