HMRC and image rights

Image rights refer to an individual's proprietary right to, among other things, the individual's name, physical characteristics, personal likeness or personal marks e.g. their signature. There are currently no codified rules on the subject and image rights are not recognised by law in the UK. A player will therefore have to protect his image through an unsatisfactory combination of privacy laws, breach of confidence and passing off. However, this does not prevent a player from selling or licensing his image rights to his club or to a third party. By doing this, the club or third party obtains permission to use the player's image for sponsorship, marketing and commercial endeavours.

As an example of how image rights can be exploited, a footballer's face or image can be used by a club to endorse products both nationally and internationally and can potentially make a lot of money for that club. A modern day player will seek to factor a percentage of these earnings into his/her contract so that his/her income is not based solely on their sporting performance.

Recently, there has been a significant increase in players assigning their image rights to specialist companies. The effect is twofold: it provides a vehicle for preventing unauthorised commercial use of the individual's image and can also save some income tax. By assigning image rights to a limited company, which then licence the rights to third parties in return for royalties, a high earning player can, for example, pay corporation tax at 28% instead of income tax at the higher rate of 50%.

Guernsey has taken the initiative and is currently awaiting approval of new legislation that, once passed, will create one of the world's first registrable image rights. Once the image rights are registered, any profits or royalties can be paid into a Guernsey incorporated company to enjoy the substantial capital and income tax benefits associated with the regime. If the beneficial owner of the image rights is not a Guernsey resident then the income will not be subject to local taxes either. The Guernsey tax regime has no capital or death taxes and levies no VAT or indirect taxes. Under the new registration scheme, a footballer would be able to create a distinct and marketable asset with significant tax benefits.

Because the image of each and every player is regarded differently, it can prove difficult to value using any agreed formula. For example, LA Galaxy paid David Beckham £125m when he joined the club which reportedly comprised 80% image rights and 20% playing wage. The club could justify this because of the huge income that could be generated by exploiting one of the most famous images in sport.

HMRC accept that sport stars have images that can be exploited but they are concerned that image rights are being overvalued to avoid income tax and National Insurance Contributions.

In Sports Club plc v Inspector of Taxes, HMRC claimed against a premiership football club and two of its players under the belief that the image rights arrangements in place were purely to allow the club to pay salaries to the players which were inflated by tax savings. They argued that the agreements had no independent value and were earnings arising from employment and therefore taxable. However, HMRC failed in its claim as the court held that the arrangements were 'separate commercial contracts' for full consideration and were therefore excluded under income tax legislation. The players were able to use their image rights companies as pension funds and the rights payments were found to be reasonable in all the circumstances.

In the face of the struggling public purse and hyper inflated footballers' salaries, we may see HMRC pursuing the matter once again.

If you would like to discuss the exploitation or enforcement of image rights please contact  This email address is being protected from spambots. You need JavaScript enabled to view it.  or  This email address is being protected from spambots. You need JavaScript enabled to view it. .