The Public Accounts Committee (PAC) has recommended that the government takes urgent action to address image rights taxation. It wants to see reforms included in the next Finance Bill to ensure related tax revenue is no longer lost. Christine Tuckerman examines the implications.

A recent meeting of the PAC with HMRC’s ‘High Net Worth Individuals’ specialist unit revealed that the tax office has a project team focusing on the risks associated with image rights.

Two income streams

HMRC explained to the PAC that case law had established the principle that if you are involved in a sport, you can receive essentially two income streams: one for the playing of sports, and another for the use of image rights.

The latter is essentially a rental payment for the use of an intangible asset such as name, image or signature. Individuals who believe their image rights have a market value have created companies that receive payments for those rights as a rental of that intangible asset.

Footballers were of particular interest in the meeting, with HMRC revealing that 43 footballers, 8 agents and 12 football clubs are currently under inquiry around the issue of image rights.

HMRC also confirmed that a significant number of footballers in the UK are not domiciled here, allowing them to incorporate a company outside the UK to own their image rights, so that payments can be made to those companies outside the UK.

However, HMRC made it clear that the risks are not specific to football, and can apply to the entertainment industry generally and anywhere else where somebody’s ‘brand’ can be a valuable asset.

HMRC told the PAC that image rights were one of the policy issues to be discussed with Minsters.

Analysis of image rights

The decision of the Special Commissioners in the case of Sports Club plc v Inspector of Taxes [2000] confirmed that a genuine payment for the use of image rights did not amount to a payment of earnings. On this basis, payments relating to image rights agreements fall outside of Pay As You Earn deductions, saving secondary employers’ NICs for clubs, but also potentially enabling individuals to ‘house’ receipts in corporate vehicles. This structure has been of particular significance for non-UK domiciled individuals, who could take image-right rental payments out of the charge to UK tax altogether under certain circumstances. 

The Spring Budget is scheduled for 8th March, so if legislation is to be brought in to tackle the perceived abuse of image rights, changes could take effect from that date. It is recommended that taxpayers or employers who have arrangements in place involving image rights look at alternative arrangements as soon as possible, in anticipation of a likely change in law.    

Contact us

If you are affected by these proposals and have any questions, please contact Christine Tuckerman or any other member of the Bishop Fleming business tax or personal tax services teams.


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