Issues connected to image rights
The importance of tax for professional sports people, part two; in this episode with Martin Rankin, we discuss tax liability issues connected with image rights.
Listen to part one on ‘Current issues with agent’s fees’ here: https://bit.ly/37hLAFa
What is an image right?
Image rights concerns the various rights an individual holds of their own persona, it is something that is intangible and they rightfully exist in varying degrees for commercial appeal. For example, could be someone’s name, nickname, photograph, likeness, signature, personal brand, a slogan, logos associated with the player etc.
One of the phrases that the tax authorities state is the concept of an image right is one that is not recognised under English Law. It certainly is recognised in other jurisdictions such as France, Germany, the US. The Guernsey authorities have now produced a register where a high-profile or not so high-profile individual; living or dead, can come forward with the executors (in the case of deceased person) to register image rights as an asset that is owned.
But that isn’t to say that all players should have image rights agreements with clubs
All individuals have their own personality and, for payments made in respect of image rights to be genuine it requires commitment on the part of the player in attending events and meetings in order to exploit their image. Not all players want to do this and would prefer to be able to enjoy some free time when they finish training.
We are not talking about work done for the club either, for example many contracts will specify a player must participate in certain activities in a team capacity, as an example: photo shoots, meet and greet sponsors, extracurricular activities that are above and beyond the employment contract.
How much can you get paid for your image rights?
And there is no proforma for the figures and percentages that can relate to image rights. For marquee players the amount may be higher and the agreement has to be commercial. In fact some clubs are employing people to track the activities of a player, how often they are doing them, where they are doing them and quantify the commercial value to the club. Effectively providing a per player P&L account that can be considered when negotiating future agreements. For some players, if little value being derived from the image rights then questionable whether the payment ought to be made.
From the club’s perspective the image rights agreement ought to specify how much they would pay the player each quarter and that this is on the assumption that they will carry out x, y and z activities. If the player does not fulfil these commitments then they wouldn’t get paid.
Why do HMRC care about this?
Salary is subject to income tax and NI for the player (47%) and employers’ NI for the club 13.8%.
By contrast the amounts paid in respect of image rights are taxed as self-employment income for the player (still 47% but with deductions for certain expenses) but there is no employers’ NI for the club. So correctly categorising these payments results in a real saving for the club and, from HMRC’s perspective, where the agreements are incorrectly used a loss of revenue to the exchequer.
On top of that, many players find it administratively easier for their image rights to be managed through a company and transfer their rights into a company so it can enter into contracts on the players behalf. This has become advantageous from a tax perspective in recent years because the corporation tax rate has reduced down to 19%.
Players can therefore accumulate income within these companies and use them as a form of long-term savings for their post football career. Worth remembering that a player has a short career and so the ability to roll-up their income in a tax efficient way is very important.
This episode was recorded on 25/11/2020
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The Pulse from Smith & Williamson
Sports & Media Show: Issues connected to image rights
Broadcast on Smith & Williamson at 09:00, 16th of DECEMBER 2020
Available online from 10:00 on the same day .