"Image rights" are once again in the crosshairs of HMRC. Figures released at the end of 2018 confirmed that HMRC is now investigating almost 200 footballers, 44 football clubs and over 30 agents, all specifically in relation to the taxation of image rights. This is a 90% increase since the previous year. HMRC has also launched "dawn raids" on certain clubs over the past 18 months on suspicion of tax evasion.
This is an interesting area as it relates to players' ability to treat income from their day-to-day job (playing football) separately to income from the use of their commercial image (image rights). Players can in certain circumstances set up companies to receive such income, which are broadly subject to corporation tax in the relevant jurisdiction of the company, rather than the (usually higher) rates of personal income tax that would otherwise be levied on the individual. There are further efficiencies available for non-domiciled players whose image rights' income is not sourced from, nor remitted to, the UK.
A House of Commons report published specifically on this topic states: "The rules on image rights as they are implied in football… are being exploited." HMRC's position that exploitation of image is "the most significant risk amongst footballers" should also send warning signals to persons in the general sports and entertainment industries, who also utilise value in image rights, as acknowledged by HMRC. It is interesting to see that other European tax authorities have taken an even stronger stance on the subject, resulting in very high-profile footballers such as Lionel Messi, Cristiano Ronaldo and even managers such as José Mourinho, being prosecuted for tax evasion to the tune of tens of millions.
Implemented properly, there is scope for image rights to be structured in a tax efficient manner. A key point would be to ensure that any contracts involving a footballer and their club(s) are clear on the position, implemented accordingly and have sufficient commercial substance. Football clubs (and their employees and contractors) must also ensure they do not fall foul of the criminal offence of Failure to Prevent Tax Evasion, as introduced in 2017 (and discussed in Tax Aware Issue 3). Football specifically has been in HMRC's line of sight and through an increase in enforcement, HMRC states that it has brought in almost £350 million by resolving the alleged tax evasion in football.
Given the nature of the investigations and the potential penalties involved, this is not a match that any player or club can afford to lose.