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HMRC issues formal guidance on image rights

11 September 2017
Neil Paterson

We have before idly speculated on some of the more entertaining image rights issues in the world of law – see link here.  In the light of HMRC’s recently issued new guidance surrounding the tax treatment of payments made to both individuals and companies as image right, we thought we would provide a little summary on the position.  A turgid subject you might think – but in fact, such payments directly affect some of the world’s most famous artists and athletes, and likely underpin their lucrative endorsement and sponsorship deals.  Caveat:  if you are versed in this field, stop reading as this is an introduction and will not teach you anything you don’t already know. 


Football, it might not surprise you to read, is a useful starting point for examining image rights, particularly after what has been a summer of record spending by clubs in the Premier League – and by Paris St Germain. We’ve therefore taken a look at the mechanisms in place for image rights structures and their treatment by HMRC for tax purposes as utilised by sports clubs.


Notwithstanding the ability to register image rights in Guernsey, it remains the case in the UK:  there is no image right specific legislation, and so no proprietary right in one’s image has been recognised in case law.  This is without prejudice to the fact that image rights are traded and licensed, often for large sums of money.  In the UK Courts, personalities bring claims in passing-off (Irvine v Talksport [2003] EWCA Civ 427) to protect commercial rights derived from the use of their own image.


The validity of bi-partite agreements with which sports clubs and associations contract with their athletes was first tested in the UK in the case of Sports Club v HM Inspector of Taxes (Sports Club v HM Inspector of Taxes 200 STTC (SCD) 943).  Arsenal FC successfully argued that payments made to both Dennis Bergkamp and David Platt, who in 1995 had joined the north London side from Internazionale and Sampdoria respectively, were of a commercial nature: they were payments to companies owned or operated on behalf of the two players in consideration for a non-exclusive to use the player’s image on items of merchandise, or to promote a specific event such as a stadium tour or one-off fixture.  This was the heyday of Serie A, then home to the world’s best footballers, and such structures at the time were commonplace in Italy.  


HMRC had argued that such payments were in fact salary payments and therefore ought to have been subject to PAYE and NI deductions in the usual fashion. The specially appointed  commissioners  disagreed and found in favour of both the club and the players, and accepted that payments were licence fees for the use of their image rather than disguised salary payments.


HMRC did not appeal the decision and have since recognised that there is a distinction between recompense for employment, for example, as a professional footballer, and payments made to a company which grant to the right to use a person’s image.


Subsequent to the Arsenal case, together with the influx of revenue to English football owing to the sale of broadcasting rights, both at home and abroad, such arrangements are common, as clubs seek to compete with one another to offer the best financial package to attract players to their clubs. The revenue have generally accepted around 15-20% of the total payments made to players by clubs can be treated as commercial payments for the licence of image rights.  The exact figure will vary from player to player and depends on how marketable that image is. To a global superstar such as Neymar Jr, the value of his image will be significantly higher than say, the substitute goalkeeper at a Premier League side (no disrespect intended!). 


HMRC Guidance


The point with payments made in respect of image rights is to ensure that such payments are commercially genuine. The key question which HMRC look at when investigating such payments is whether or not any payments can be realistically seen as a diversion of income.


HMRC’s own guidance on emoluments as applied to commercial agreements states that;


- Consideration be given by the Board of Directors to the active use of image rights as a benefit to the commercial activities of the employer, whether to seek new agreements, reviews of the outcome of existing agreements, and the possibilities for increased value additional to rights existing under the employment contract;

- a business plan for promotional activities involving the exploitation of image rights and the outcome of reviews of performance against that plan, including details of actions taken if the employer is not realising a commercial return from an image rights agreement;

- negotiation of the terms of each image rights agreement to demonstrate consideration on an individual basis and to reflect any differences between the exploitation of image rights within and outside the UK;

- details of independent advice received regarding the valuation of the image rights, or internal analysis of value based on previous experience;

- due diligence regarding the image rights company and any advice provided to the employee regarding the establishment of an image rights company;

- records of activities performed and any subsequent discussions about the performance of services under the image rights agreement and actions taken.

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