Carousel_Arrow Chat icon_cookie IHT_trust_wills IR35 Combined Shape 2 Group 10 Login Mobile Menu Share Share Email SubMenuMobile Group 9 VAT View_Gallery View_List capital_allow Triangle 2 Copy Close construction cyberpro employment_tax_shares emplyer_solutions entrepreneurs_corps fee_protect Group 7 grant_fund Group i_Clock i_Consult i_Done i_Eligibility_Tick i_Enter i_Filter i_HMRC i_Negative i_Play i_Plus i_Reset i_Support_Legal i_Support_TaxDesk i_Support_VAT i_Tick noun_marketing_1872083 noun_online_2126759 i_download i_meet Group Copy 24 Group 18 noun_electrical_1240755 copy noun_Technology_2125422 noun_Science_2031115 i_tick_bullet_block international_tax patent_box private_client property_sdlt r_and_d reliefs_incentives Search specialist_tax status tax_indemnity valuation YouTube
Markel Tax

23 Jan 2018

UK developments in the taxation of image rights

The recent revelations in the press from the so called 'Paradise Papers', a number of documents obtained from the hacking of the the computer systems of the Appleby law firm in Bermuda and other related entities, has brought the avoidance of tax in the spot light. Kevin Offer reviews for Global Sports Law & Taxation Reports (GSLTR).

Kevin is a partner at Gabelle in London and a member of the International Taxation of Entertainers Group (ITEG).


The recent revelations in the press from the so called “Paradise Papers”, a number of documents obtained from the hacking of the computer systems of the Appleby law firm and other related entities, has once again brought the avoidance of tax into the press.  In addition, a number of high profile cases involving footballers in Spain and press reports in the UK have highlighted the use of structures for the exploitation of image rights.  These tax planning arrangements are usually legal so do not constitute evasion.  However, in the current client where, in the UK, the distinction now appears to be drawn between tax planning and tax avoidance rather than avoidance and evasion, tax authorities and governments are under increasing pressure to clamp down on what was previously considered to be acceptable tax planning.

I commented within a previous article on the football leaks revelations and how they have affected UK tax planning[1].  This article looks at developments in the UK during 2017 and how they may impact structures in the future.

Image Rights Structures

Image rights structures have been around in the UK for many years. With a growing number of such structures the payments to image rights companies was the subject of a challenge by HMRC in 2011.  After lengthy negotiations it was believed by the clubs and their advisers that an agreement had been reached with HMRC in 2015 that allowed clubs to treat up to 20% of the salaries paid to players as a payment for the use of their image rights.  Documents published as part of the football leaks revelations included an email from an adviser indicating that the position had been “agreed formally with the clubs” and that, although nothing would be formally published, all clubs had been provided with details of the agreement with HMRC.  However, when asked about these arrangements, HMRC denied agreeing any deal with the clubs in 2015.  Earlier this year they stated that they are currently investigating more than 100 players over their use of “tax avoidance schemes”.  This does not specifically mean that they are investigating image rights companies as it is known that a number of individual players are caught up within enquiries into other tax arrangements but it can be concluded that image rights payments are included in the enquiries.

The number of players based in the UK setting up companies to exploit image rights has increased by around 80% in the past two years with more than 180 players in the English Premier League now appearing to have companies that may receive income from the exploitation of image rights.  A little over 100 of those companies are reported to hold a total of £60m and are reported to have avoided at least £21m in tax.[2]  Such companies can be used to provide pension type benefits or create a capital payment after retirement.

Image rights companies are particularly attractive to overseas players who can pay funds outside the UK after ceasing to play in the UK and avoid further taxes altogether.  Foreign players with an international earning potential may be able to set up a company outside the UK and take advantage of the UK’s non-domicile regime.  This can allow payments for image rights, etc. that arise outside the UK to be paid to an offshore company without incurring any UK tax charge.  It is not uncommon, therefore, to see endorsement contracts to cover exploitation of a player’s image in certain areas of the world with the UK specifically excluded.  Such companies may be set up in tax havens although the need for access to tax treaties and the reluctance of some sponsors to be associated with a company in a tax haven make this less likely.  It is, however, still possible to have the best of both worlds by using structures such as the one it is suggested was set up for Jose Mourinho which can allow a small amount of income to be taxed in Ireland at a rate of 12.5% with the balance flowing through to a company in a tax haven such as the British Virgin Islands.

The use of image rights companies as highlighted in the football leaks papers led Meg Hillier, the Labour MP and chairperson of the House of Commons Public Accounts Committee, to say “I am frankly amazed that HMRC can seemingly rubber-stamp such a practice which, on the face of it, seems solely designed to minimise tax.  Although this is legal it is certainly not in the spirit of the law”.  This increasing pressure on HMRC to challenge such structures led to an announcement in the UK Budget statement in March 2017 that HMRC would “publish guidelines for employers who make payments of image rights to their employees to improve the clarity of the existing rules”.[3]

Image Rights in Practice

In July 2017 the Entertainment, Sports and Media Group of the ICAEW published a document “Image rights – a whole new ball game” which set out the way in which image rights work in practice in the UK and the tax implications arising from such arrangements. This identified that image rights had become an integral part of football and were included within negotiations whenever a player switched clubs or signed a new contract. The document even goes on to say that a club would agree to pay a proportion of salary to a player’s image rights company.

The tax benefits were indicated but the only issue identified within the document was the problem of valuing the image rights which, the author comments, was “subjective”.

Emphasis was placed on HMRC’s acceptance that image rights are separate after the Sports Club case[4] and it is commented that the agreement with the 20% cap was a temporary arrangement for the 2016/17 season.  What is not addressed in the document, however, is the question of whether payments made are actually for the exploitation of image rights or relate to an employment.  For example, is a simple split of a salary within the 20%/80% agreement sufficient?


The final decision in the Rangers case was the subject of an article in this journal by one of my colleagues[5] so is not considered further here.  However, within paragraph 39 of the decision, the court set out the principle that employment income paid from an employer to a third party is still taxable as employment income.  HMRC’s view is that this principle applies to a wide range of “disguised remuneration tax avoidance schemes no matter what type of third party is used.  HMRC guidance published on 29th September 2017 stated that HMRC intended to use the decision to take action against a number of schemes[6].  Whilst that guidance does not refer to image rights structures it could be argued that payments made to an image rights company negotiated as part of the salary of a player could be challenged on these grounds.

HMRC Guidance

The awaited HMRC guidance on image rights payments was published on 16th August 2017[7].  The actual guidance document is very short and, on an initial look, doesn’t seem to contain much in the way of guidance.  It is identified that payments for the use of an individual’s image rights can be taxed in different ways. The guidance then goes on to indicate that tax may be charged in one of three ways.

  • Payments made to a self-employed individual are taxable as professional income.
  • Payments to employees for the duties of an individual’s employment must be taxed as earnings subject to tax deductions at source and not as payments for the use of image rights. It is the employer’s obligation to ensure that deductions are made.
  • Image rights payments made to a UK company will give rise to a liability to UK corporation tax on profits. Income received by the individual from their company is taxable in accordance with the type of income received (i.e. dividends, salary, etc.).

The guidance does not go into further detail but refers the reader to the HMRC Employment Income Manual for further information[8].

HMRC Employment Income Manual

HMRC have made their internal manuals available online for many years.  They provide guidance to HMRC staff on how HMRC interpret UK tax law and how taxpayers’ affairs should be handled by HMRC staff.  Whilst the manuals do not have the force of law it can be taken that HMRC will take the view expressed in the manuals and argue against any taxpayer or adviser who takes a different view.

At the same time as publishing the guidance on the tax payments for use of image rights HMRC also published additional guidance within their Employment Income Manual[9].

Firstly, HMRC define “image rights” as likely to be dependent upon a bundle of different rights.  It is noted that image rights contracts are popular with sportspersons but are likely to allow for the exploitation of an individual’s public appearances, copyrights, trademarks, etc. as well as an individual’s name, likeness, etc.

The next section of the manual comments on payments to an image rights company (IRC).  It is noted that, in recent years, the assignment of an asset described as “image rights” to an IRC has become common practice.  However, in HMRC’s view, it is not correct to regard the transfer of a registered trademark, such as a person’s name, caricature, etc., as a transfer of “image rights”.  It is noted that an individual may agree to perform services in connection with the “image rights” which are exploited by the IRC resulting in the payment of royalties or license fees.  The justification often quoted by advisers for arrangements such as this is the Sports Club case referred to above.  HMRC, however, note that this was a decision by the Special Commissioners published in anonymous form.  As the Inland Revenue (the predecessor to HMRC) did not appeal this decision it did not proceed to the courts and HMRC therefore regard the decision as “informative rather than having created precedent[10].  This leads to the conclusion that the Sports Club case cannot be relied upon and that other factors need to be considered before HMRC will accept an IRC is effective for tax purposes.

The manual goes on to consider the Sports Club case in more detail.  It is noted that the Special Commissioners recognised there was no property in a person’s image and the description of the arrangements in the case as “image rights agreements” was misleading.  The arrangements were therefore referred to as “promotional agreements”.  These promotional agreements led to payments being made to the IRC’s of the two players involved by the club in respect of promotional services provided by the players.

The case before the Special Commissioners was whether the payments were earnings from the employment of the players by the club (and so chargeable to income tax as employment income) or, if not, benefits in kind (and so treated as earnings from the employment).  In order to consider these points the following questions were identified.

  1. Did the promotional agreements have independent values?
  2. Were the promotional agreements a “smokescreen” for additional remuneration?
  3. Were the payments under the agreements emoluments from the employments?

The Special Commissioners decided that the promotional agreements were capable of and did have independent values and were genuine commercial agreements.  As a result, in light of the specific facts of the case, the payments were not earnings from the employment with the club.

The Special Commissioners also decided that a “benefit” cannot include something in return for “good consideration under a separate commercial contract”.  The payments were not, therefore, benefits in kind and should not be regarded as earnings of employment.

In conclusion HMRC, whilst accepting the decision, consider that it is based on the specific facts and should not be regarded as a precedent to justify the arrangements of other taxpayers.  HMRC will still consider whether the payments to an IRC should be regarded as income arising from an employment.  Whilst it is not referred to in the manual the decision in the Rangers case may assist HMRC with this argument in future cases.

The manual then moves on to consider whether deduction of tax should be made from payments made to an IRC.  Royalties and other income arising from intellectual property which has a source in the UK are liable to UK income tax[11].  HMRC believe some of the intellectual property rights that form the image rights assigned to an IRC will meet the definition of intellectual property within s.579(2) ITTOIA.  The payer may then be placed under an obligation to deduct tax from any payment made under Part 15 of the Income Tax Act 2007.  Consideration of the individual circumstances is therefore required to determine whether tax should be withheld.

In addition, s.906 of the Income Tax Act 2007 places an obligation to deduct tax on the payer of a payment for the use of intellectual property to a non-UK resident.  The definition of intellectual property for these purposes was expanded by Finance Act 2016 (with effect from 28th June 2016) to cover a wide range of payments and follows that contained in the OECD model tax treaty.  In particular, HMRC will consider the commentary to Article 12 when determining whether a payment gives rise to an obligation to deduct tax at source.  If the payment is from the UK to a country with which the UK has a tax treaty then the obligation to deduct tax may be reduced or eliminated.  The availability of relief under a treaty will, however, be denied if the parties are connected and the payment is made under tax avoidance arrangements.  Anti-abuse provisions within a treaty must also be considered.

Having set out the view that they consider the payments made to an IRC as, potentially, of more than one type HMRC will seek to apply tax to each element of the payment in accordance with UK tax law.  Where the payment is considered to be a royalty then an obligation to deduct tax will be placed on the payer and HMRC will pursue the payer where this has not been done.  Where a payment is determined to be employment income then an obligation to deduct payroll taxes will arise and HMRC will, again, pursue the payer where this has not been done.  It is in the area of employment taxes that HMRC are now pursuing clubs and players.

HMRC Enquiries

The internal manual contains some guidance on how an enquiry will be conducted.

Firstly, when looking at whether a payment constitutes employment income, HMRC make it clear that they are only looking to a situation when a payment purporting to be for image rights is made where there is an employment relationship such as between a club and a player.  Agreements with a third party should not, therefore, give rise to employment income although HMRC may still seek to collect tax from the payer if they believe the payments constitute a royalty or challenge any arrangements where the payment is connected with an employment.

HMRC consider that a player is employed by a club to be a member of a team.  Remuneration under a contract of employment will therefore arise from the performance of the duties of the employment which may include promotional services as well as playing for the club.  These duties may be split between two (or more) contracts but may constitute one arrangement.  HMRC therefore believe there must be a commercial justification for distinguishing between payments for performance of the duties of the employment and payments for promotional services through an IRC.

HMRC go further in their internal manual to say that agreements for promotional services are generally negotiated to run alongside a contract of employment.  Renegotiation of the employment contract may also result in a renegotiation of the image rights agreement leading to an impression that the total payments are considered by the employer to be an overall package.  A similar argument was made in the Rangers case but HMRC do accept that there may be circumstances where there is a distinct commercial reality to each element.  HMRC expect that those drawing up contracts covering image rights payments will have sufficient experience and expertise to ensure that the arrangements are commercial.  In particular, HMRC consider the employer (i.e. the club) to have proper regard to the commercial revenues expected to be achieved.  The actual payments, as well as the contractual terms, will therefore need to reflect commercial terms and so the previous practice of making a payment of up to 20% of remuneration is clearly at an end.

From the above it is clear that HMRC regard commerciality as the main consideration and each case may therefore be reviewed on its own facts rather than any accepted principle.  Some examples of the records that a club may consider keeping are set out in the manual[12] but the list is not exhaustive.  The list includes evidence of the consideration of the commercial activities to be performed, business plan, individual negotiations, independent advice, etc.  What is sufficient will, however, depend upon the individual case.

HMRC Enabler Penalties

Although not specifically relating to image rights it is worth mentioning the new penalties recently enacted in the UK to cover those who enable a person to avoid taxation[13].  Under this new legislation a criminal penalty may arise on any party who enables a person to avoid tax.  The definition of an enabler is quite wide and includes a party to a contract if it is reasonable to conclude that the party should have known the arrangements they were entering into could be used to avoid tax.  A club may therefore be caught by these provisions if they do not take care to ensure any image rights payments are made on a commercial basis.

Geovanni & the Future

As has already been mentioned HMRC are investigating more than 100 players.  Whilst not all of these are related to image rights arrangements it is becoming clear that this is an area HMRC are targeting.  In addition, it appears that the target of the enquiries is the obligation of the club to deduct tax rather than the structures themselves.  I have seen a few cases which are still at the early stages of an enquiry but one case that is going before the tax tribunal in the UK is that involving the Brazilian player Geovanni[14].  The actual case has yet to be heard but most of the background detail to the case is set out in the decision of the tribunal to an application to vary directions[15].

HMRC have challenged the arrangements between Hull City and Geovanni whereby a payment was made for use of image rights to an IRC.  HMRC’s view is that the payments were a “sham”, should be considered part of the remuneration of the employment and taxed as employment income.  This is fully in line with HMRC’s views as expressed in their internal manual guidance but it should be noted that the case arose long before the guidance was published.  HMRC are therefore looking to apply the guidance issued in the summer to past years so that the previously perceived agreement will not provide any protection if the arrangements are not commercial.  The Geovanni case will be interesting to follow and I am sure will be the subject of a future article in this journal once the decision is known.  In the meantime there are likely to be many more cases like this one.  Any club or player in the UK or a player considering a move to the UK would be advised to take advice on any image rights arrangements they have in place to ensure they are on a commercial basis taking into account of HMRC’s current guidance.


[1] Tax Planning & the Football Leaks, GSLTR March 2017

[2] Reported in the Sunday Times,11th December 2016

[3] Para 4.13 of the Spring Budget 2017 Policy Paper published 8th March 2017

[4] Sports Club plc and others v CIR [2000] STC 443

[5] The Final Whistle: Rangers in the UK Supreme Court, GSLTR September 2017

[6] HMRC Guidance - Disguised remuneration: A Supreme Court decision (Spotlight 41)

[7] HMRC Guidance - Tax on payments for use of image rights

[8] HMRC Internal Manual – Employment Income Manual published at

[9] HMRC Employment Income Manual published at

[10] HMRC Employment Income Manual published at

[11] Part 5 of the Income Tax (Trading and Other Income) Act 2005 (ITTOIA)

[12] HMRC Employment Income Manual published at

[13] Schedule 16 Finance (No.2) Act 2017

[14] Hull City AFC (Tigers) Limited v HMRC

[15] First Tier Tribunal decision at


Tagged International Tax
Next article in series

23 Jan 2018

Public Register of Ultimate Owners of Overseas Companies owning UK property by early 2021