On 6th December 2011 HM Treasury announced that for the second time in three years they would grant a tax exemption to non UK resident footballers playing in the UEFA Champions League Final.  This includes remuneration paid by their clubs and amounts due to them under sponsorship and endorsement agreements.

It once again brings up the issue of the way in which the UK tax code deals with the way in which sportspeople and performers are rewarded for their endeavours. Currently there are many UK football and rugby clubs who are under the review of HMRC for the use of image rights companies in the payment of players.

The club pays the player as an employee, deducting PAYE and NIC as normal. However a payment is made to a company to which the individual has assigned his (or her) image rights. The company will then utilise the image right and enter into endorsement agreements and other commercial contracts. 

The club pays an amount gross to the image rights company for the use of the individual’s image right and other commercial rights associated with the player. They do not deduct PAYE or NIC and the amount rolls up in the company. At some point in the future the company will be wound up, or the footballer will retire to a sunny island before stripping the value out.

Whether this company is UK resident or not is an interesting angle to consider, and there is no doubt that for a UK resident footballer it is difficult to move away from a UK company without navigating both the transfer of assets abroad rules, and the central management and control rules for corporate tax residency. That is not to say that it isn’t possible, particularly where the image right company existed prior to a non UK domiciled person coming to work in the UK or where the role of director is properly devolved to competent foreign corporate professional directors using a corporate entity within the EU. 

Platt and Bergkamp were pioneers of the image rights company. HMRC challenged the basis of the treatment afforded to Platt and Bergkamp and took them to court in 2000 in the anonymised case of Evelyn & Jocelyn. HMRC lost the case on the basis that the substance of the image rights payments was genuine. Arsenal FC did benefit from the use of the commercial rights to the image of both players. Platt was a England player, and Bergkamp was one of the world’s greatest players and played for the Dutch national team.

What continues to trouble HMRC is the use of image rights companies by players who make very little difference to the commercial income of the football club. There will be a select group of footballers and rugby players who can command genuine image rights payments. These payments need to translate into increased sales of replica shirts, increased season ticket sales, and so on. If there is no knock on effect what is being paid to the players? Arguably it’s remuneration that should be taxed as such. There are easy points to be secured by naming players who we would find it hard to argue have any image whatsoever......an easy one for me is John Barnes – did you see those yellow suits on Channel 5 football shows a few years back?

My recent conversation with the FD of a Championship club suggested that outside the Premiership image rights companies weren’t very common and that he was used to PAYE and NIC all the way. He hopes that he will be dealing with image rights next season and currently that might be worth a bet!

For the non UK resident sportsman who visits the UK a few times a year to compete in tournaments and competitions, the position is slightly different. These individuals will normally be self employed. Any winnings will be taxable in the UK, even if they are not present in the UK for long enough to create a permanent establishment (relevant for more orthodox businesses). Typically the payor will deduct withholding tax from any payment made, and the non UK resident will then complete a tax return and declare the income and the appropriate amount of remaining tax due for payment.

The flies in the ointment are the endorsement payments and commercial agreements received by the sportsman throughout the year. In the past HMRC accepted that their entitlement to tax the endorsement payment was time driven – so one day in the UK per annum meant the UK Revenue taxed 1/365 of the total amount received annually. However, the new HMRC approach is to find an alternative key to tax the endorsement payments – such as tour / tournament points secured in the UK as a proportion of the total for the year, or the percentage of winnings secured in the UK as a proportion of the year’s total. Generally this change in approach would bring much more tax into the UK coffers and is being resisted by many advisers across the UK. Ultimately there is no written rule that allows HMRC to take this approach!

All of that therefore begs the question as to why the footballers at Wembley in 2013 will get an exemption, but visiting golfers, cricketers, tennis players and so on, will all be taxed to UK income tax on chunky amounts in relation to their worldwide endorsement and commercial receipts?! I guess the answer lies within the HM Treasury impact assessment in that a Wembley UEFA Champions League Final brings in nearly £50m of income to the UK, and UEFA would not play the final in the UK if the rules weren’t relaxed.

No one ever approached me for so much as an autograph when I performed for Welton Rovers Reserves and Alleyn Old Boys 2nd XI! Instead I had to pay to play......