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Amid the general outcry over Manchester United’s proposed £500 million bond issue, one of the many risk factors listed seems to have received undeservingly scant attention. The club noted that it was under investigation by HMRC for payments made in relation to players’ image rights. These structures, common in top-flight football, typically require a player to assign all rights in the exploitation of the player’s image to a company, often off shore. Unlike most civil-law jurisdictions, since there is no single concept of an “image right” in English law, the agreements typically include a broad assignment of all rights to use a player’s name, image, likeness, voice, even shirt number, and so on. The club then pays a licence fee to the company for the right to exploit these rights.
Crucially, the clubs argue that these payments should be viewed as capital sums, and therefore not taxed as income, since the payments are made under genuine arm’s-length transactions under which the club gets real value for the money paid to the players. HMRC’s position, however, is quite the opposite, arguing that image-rights structures are artificial schemes designed to avoid tax. First, payments made in this way are not subject to UK income tax or National Insurance in the hands of the player, so the clubs can incur less expense to ensure that the player receives the same net amount as if the payments were paid as wages. Secondly, it means that the club does not incur the National Insurance costs on the payments that it would if the payments were made as wages.
The legality of image-rights structures has long been problematic even after the courts first found such payments to be legal in the cases involving Dennis Bergkamp and David Platt. It has been suggested that HMRC has been aching for the opportunity to bring a case to court as a means of overturning these decisions. Indeed, the fear that the courts could reverse the Bergkamp decision is one reason why several Premier League clubs do not use these structures.
Now, with public finances stretched, it may be that HMRC is more actively pursuing this opportunity. Any judgment overturning the Bergkamp decision would have serious consequences for many Premier League clubs. The prospectus for Manchester United’s proposed bond issue suggests that the club could be liable for up to £5.3 million in past National Insurance contributions. Of greater concern to clubs, however, would be the increased wage costs, since there is little doubt that players would request their wages be grossed up to leave them in the same net position, particularly as they will be subject to the new higher rate of income tax of 50%.
Coincidentally, it was recently reported that the annual profits of Beckham Brand Limited, the company set up to exploit the image rights of David and Victoria Beckham, increased by 60% after his first season with the LA Galaxy. Beckham’s return to Manchester United with AC Milan in the Champions League will no doubt serve as a reminder of the real value of the rights to a high-profile player’s image.
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