HMRC to visit football clubs to review 'image rights' and other tax compliance

The statement was made in Treasury Minutes containing the response from the government to seven reports by the Public Accounts Committee (PAC) including one from January 2017 on HMRC's performance in relation to collecting tax from high net worth individuals.

Paul Noble, a tax investigations expert at Pinsent Masons, the law firm behind Out-law.com said: “Rarely a month goes by without the press reporting on tax and football – from Lionel Messi’s Spanish tax investigation to Glasgow Rangers’ EBTs, from players using tax avoidance schemes to HMRC chasing clubs for unpaid taxes. Football is a sport rich with money generated by sponsorship and television rights and involves many areas where tax may be at risk for HMRC and with this in mind it attracts a great deal of scrutiny and interest."

It was announced in last month's Budget that HMRC will publish guidelines for employers who make payments for image rights to their employees, "to help employers understand how these payments should be taxed". Making new guidance publicly available is intended to improve compliance by clarifying what an image right is and the tests to determine whether payments can be treated as image rights payments or must be subject to Pay As You Earn (PAYE) as earnings.

The Treasury's response to the PAC report confirmed that HMRC has "initiated a specific football compliance project" in order to "make sure the rules on image rights are applied consistently in football".

An anonymised decision in a tax case published in 2000 confirmed that a sports person could have two income streams, one from playing the sport and a second from the use of 'image rights'. The payment for image rights would effectively be a rental payment for an intangible asset.

Sports persons and celebrity entertainers typically assign their image rights to a company.  A football club may make payments to a player’s company to license the image rights from the company to enable the club to enter into an agreement with a sponsor to enable the sponsor to use the player’s picture or name.

If the player's company is a UK tax resident company, it will pay corporation tax on its profits from licensing the rights at 19%, under current rates, whereas the profits could be subject to income tax at 45% if received directly by the individual. A further tax saving arises from the fact that the football club will not be liable to employer's national insurance contributions (NICs) in respect of payments to the company in respect of image rights. Employer's NICs are payable at 13.8% in respect of salary payments made directly to footballers.

Many footballers will not be UK domiciled for tax purposes and will hold their image rights through a non-UK company. This may mean that the payments escape UK tax altogether.

HMRC has a project team that focuses on the risks associated with image rights – both in relation to football and the entertainment industry. HMRC collects information from football clubs to assess whether the balance between pay and image rights is reasonable. HMRC chief executive Jon Thompson, told the PAC last year that the majority, but not all, of the clubs in the Premier League, supply HMRC with this information under a voluntary agreement.

He said that 43 footballers, 8 agents and 12 football clubs were, at that time, under inquiry around the issue of image rights.

‘There have been cases where we have queried player payments – when you get some reserve player no one’s ever heard of getting enormous amounts for image rights,’ Jon Thompson said.

Last month legal arguments were heard by the Supreme Court in a case concerning whether payments made by Rangers Football Club plc (RFC 2012) to players and executives at the club were subject to income tax deduction. The case concerns payments made by RFC 2012 into employee benefit trusts.