OPINION: evolution of image rights – back to the future?

07 Jun 2018

By: Sport Industry Group

As image rights become more commonplace amongst sportsmen and women, Peter Hackleton, partner at Saffery Champness, looks into the professionalisation of former amateur sports, the growing international transfers of players, and how tax law and practice is constantly evolving in a bid to keep up with changing commercial circumstances…


In this article we focus on one of the UK’s leading exports, namely the Premier League and the UK’s taxation of image rights for this sector: how the tax rules have evolved and what the future holds. Given the size of the football industry, with Premier League club annual revenues now exceeding £4bn, and salary costs of over £2.5bn, it is unsurprising that football remains of significant interest to HM Revenue and Customs (HMRC), despite the tax take from Premier League clubs already exceeding £1.5bn. A key area of focus is the taxation of image rights structures.

Image rights structures

By way of brief background, an image rights structure involves a player transferring their “image rights” - a term not explicitly recognised in UK, but one which is understood to be a basket of intellectual property rights associated with the player’s name, fame, image and likeness - typically to one or more companies. The commercial advantages are to separate the rights from the playing activities, and for top players, to provide limited liability for commercial activities and to make the rights capable of disposal to third parties. From a tax perspective, the advantage is that the revenues are subject to corporation tax at 19% in a UK company (or potentially less if an offshore company is involved), rather than at employment tax rates of up to 47% if received personally. However, funds extracted from an image right company may be subject to a further layer of taxation at the shareholder level.

Such arrangements are not new and have been scrutinised by UK authorities. The first UK tax case involved two players who moved to Arsenal in summer 1995. The structures were challenged by HMRC in the “Sportsclub” case, and the courts found in favour of the players. The key findings of the courts were as follows:

“On the facts, the promotional and consultancy agreements had an independent value. The players had had similar agreements with other clubs and it was clear that organisations were willing to pay for the right to use the players’ images in association with their products, as provided for under the agreements. Other players of a similar calibre also had such arrangements. Moreover, it was not right to describe the payments as a “smokescreen” for additional remuneration…payments were to be made under them [the image rights contracts] and they could have been sued upon them”

No further cases have reached the UK courts since Sportsclub, and therefore the case is still very much the relevant authority on image rights.

Changing practice

Following the Sportsclub case, there has been an uneasy relationship between clubs, players and their advisers and HMRC on the tax treatment of image rights. Given the potential saving of 13.8% national insurance on image right payments for the clubs (as part of an overall package for a player), an initial boom in popularity meant large numbers of players established structures, and an ever-increasing percentage of the player’s total package was paid for their image rights. 

HMRC challenged a large number of structures, on the basis that the rights were never properly assigned, that the payments for the use of rights were often disproportionate, and that the rights were in many cases never used. Clearly, each case was different and after much negotiation a blanket settlement deal was offered to all Premier League clubs in 2011, which almost all accepted. No guidance was given as to how future structures would be treated.

There followed a period where the football clubs were more circumspect. The bigger clubs realised that in order to satisfy a growing inventory of commercial players they needed additional access to the players over and above the standard rights of a standard (Premier League) employment contract. So for top players, image rights deals continued to be struck, with great efforts made to ensure payments for the use of rights were proportionate, and the rights were actively exploited. 

Deal or no deal?

HMRC engaged in discussions to ensure they were satisfied with the club’s approach. An official deal for three seasons was offered to clubs based on pre-agreed capped payments (for both the club and per player) based on a minimum level of prescribed activities to exploit the image rights. This agreement was acceptable to both sides and a satisfactory conclusion to a long-running adversarial saga until a change at the top in personnel at HMRC, and adverse media coverage about tax avoidance in football sparked fresh tax challenges and the revocation of the deal. 

A key concern cited was the use of a split ownership structure, with a UK company for UK image rights, and an offshore company (often in a low-tax jurisdiction) for non-UK rights. The UK’s anti-avoidance provisions could apply so that the UK authorities can look through the overseas structure and tax the revenues to UK income tax on the player, but these rules should be less of a concern to UK resident non-UK domiciled sportsmen and women and non-UK residents. However, this has prompted a technical debate about whether payments from a UK club to offshore companies for use of non-UK rights is UK source or non-UK source; however the complex case law around the “source” of income suggests that the source is the place where the activities take place, which for the vast majority of activities under such contracts will be outside the UK. 

What does the future hold?

New guidance from the UK authorities in relation to image rights was published in August 2017 and the official stance appears to revert to the post Sportsclub case guidance around the valuation of rights and substantial exploitation of the rights.

In a world where media exposure is growing, image rights will remain a key component to the sport and entertainment sectors. It is clear that the Premier League clubs and other sports, as well as the wider world of entertainment remains of great interest to the tax authorities. However provided the image rights are properly transferred, that payments for the use of those rights is proportionate, and the rights are actively used by the licensee and other commercial partners, image right structures may remain an effective way of providing limited liability for the individual and structuring  commercial deals.

For other sectors of the entertainment industry - including music, front-of-camera talent and individual sportspeople (as opposed to team sports) - the rules are entirely different. Non-resident entertainers and sportspeople are subject to UK income tax on their UK income, as well as a proportion of their worldwide endorsement income based on the amounts attributable to their performances in the UK. Whether the rights are held via a corporate structure or not, HMRC look through such structures to tax the individuals accordingly.