HMRC kicks up a fuss over professional football

Today HMRC reportedly arrested several individuals involved in professional football, including Newcastle United Managing Director Lee Charnley, as part of a number of raids amid a crackdown on tax evasion in the professional football world.

Part of the investigation may relate to players' image rights. HMRC announced in December that it was investigating image rights in football. Image rights are likely to be relevant considerations for prolific players, for example the likes of Wayne Rooney and Lionel Messi. Such players may be entitled to payments from their clubs for the commercialisation of their image, as a separate and additional payment to their playing and performance related salaries. Payments made in respect of image rights may be taxed at a lesser rate than typical salary payments.

It has been suggested in the past that some clubs may be making image rights payments to players whose image is arguably unlikely to generate significant revenue through commercial deals i.e. that are not especially prolific and whose image may not be in public demand. HMRC has looked into image rights in sport the past, as it would be possible for clubs to use the structure as a tax-favourable alternative to paying all of a player's income via a standard salary payment.

One structure that can be used to exploit the image rights strategy is the formation of a company linked to or controlled by a player. The company would receive payments in respect of the player's image rights, and the player would effectively pay corporation tax on those payments as profit as opposed to (and at a lower rate than) income tax. From a club's perspective, it would not pay employer's national insurance contributions on image rights related payments.

The details of the current investigation are not clear to the public at this stage. HMRC has stated that the investigation relates to tax and national insurance.

If you have any questions on the above, please do not hesitate to contact the team at McDaniel & Co. on 0192 281 4000 or legal@mcdanielslaw.com.