Image rights: Are UK dropping the ball…or ‘parking the bus?’ (Part two)
Structuring image rights: an overview
Following Part One, I suppose you’re interested in planning for Junior’s imminent draft into a Premier League academy…Let’s take a look at how you might protect your (Junior’s) future fortune.
General – image rights
As we have seen above, an image right is not a ‘thing’ in its own right under English law. However, that aside, HMRC does recognise ‘image rights’.
But this does not open up a free for all. An image rights arrangement must have commercial substance in order for an athlete or entertainer to be entitled to exploit additional revenues from their personal brand.
To give an example, Wayne Rooney may be able to charge Manchester United upwards of £1,000,000 a year for the use of his image on merchandising and advertising. However, it would be unlikely that HMRC would accept that a defender from a division two team whose image features only on his changing room coffee mug would be able to charge a similar rate.
Generally speaking, an image right is held by a Company with the player and / or his family holding shares in the Company. This is usually as a result of the combination of legal protection and the taxation of companies (as opposed to the higher taxes paid by individuals and partnerships).
Location of image rights structure
It is likely that a UK resident and domiciled individual will use a UK company to exploit his image. This is largely as a result of anti-avoidance provisions that are triggered where such a person sets up a non-UK entity merely to avoid tax. The effect of triggering these rules will be that the entity is ‘looked through’ and the income will be taxed on the head of the shareholder.
However, especially where some of the profits will be rolled up for a number of years, receiving such income in to a UK resident company subject to tax at 20% (soon to become 19%) is efficient for tax purposes.
Athletes coming to the UK from overseas are quite likely to have a non-UK domiciled status. As such, it is likely that they will be able to avail themselves of the remittance basis of taxation for income and gains purposes.
In this scenario, a non-UK company may be effective as long as it is merely used to exploit non-UK income. Typically, such a person might establish two companies:
- A UK Company: this will collect UK source income; and
- A non-UK company: this will collect non-UK source income
Assuming that the non-UK company is properly managed and controlled from overseas it should present the ability to roll up income free from UK taxes. The sports star should only be subject to tax on the remittance basis – in other words they will only pay tax on payments and benefits received in the UK.
As you may be aware, there are significant changes afoot for non-doms. Please see our signpost article for our commentary.
It is clear that the UK tax framework provides non-dom athletes with the opportunity to structure their image right payments in a tax efficient manner. This is because, where done properly, these payments are not payments in respect of their employment. This is not a loophole – the Court, many years ago, found this to be the case and there has be no subsequent change to the legislation.
Furthermore, HMRC has taken a pragmatic approach and has agreed parameters with clubs regarding the quantum of any such payments.
Once again, much of the discourse within the press and by politicians and, at best, can be seen as ill informed. The tax rules allow it and HMRC have put in place parameters to police it. As such, it is not a tax dodge.
So, when do we think it is all over for image rights payments and structures? Not now.
Should you have any questions regarding the above please do not hesitate to contact us.