The taxman is currently eyeing up the affairs of footballers using image rights companies to lower their tax bill. A story in the Daily Mail, cried: “Top soccer stars dodge having to pay millions in tax by cashing in on loophole.” According to these objective folk, footballers complex tax arrangements allow them to pay just two per cent on earnings. These figures are questionable, however.
Nonetheless, it is true that HMRC are looking into instances where footballers may be exploiting image rights to lower their tax bill. But two per cent? That seems unlikely…
When a big-name footballer joins a new football club, they will agree salary terms as well as image rights. Take David Beckham for example, when he joins a football club his image alone offers huge benefits for the club he’s moving to. They can exploit his image to bring huge revenues into the club. For example, attendance figures will be up and football shirt sales will increase due to his image. Footballers in the modern age ensure they get remunerated for this.
In order to take advantage, footballers will set-up their own company to receive these payments. For many, this can work like a pension fund for when they retire from the game. As Gordon Taylor of the Professional Footballers’ Association explained:
“Footballers have a limited career and it is up to them and their advisers to make their earnings as tax-efficient as possible. A majority of players are on Pay As You Earn and are paying the 50% top rate of tax with National Insurance on top of that.”
“But a few star players do have image rights deals where they get money for shirts sold with their names on the back and the like. These aren’t subject to PAYE. But there is nothing illegal and they are all working to the law.”
Indeed, but problems arise if a football club is suspected of using image rights as a way of topping up a players salary. HMRC will wonder whether image rights companies are simply being used as a more tax efficient way of a player receiving wages? Footballers and their representatives will need to prove the value of their image rights is accurate. Back in 2000, Dennis Bergkamp and David Platt both won cases after setting up offshore image rights companies – both won as they were able to prove their image rights were rightly calculated.
If a company of this type was set up in the UK, the footballer would be subject to income tax when taking the money out. If it’s withdrawn as a salary then it will also attract National Insurance Contributions. However, by withdrawing it as a dividend they can avoid NICs.
In order to be particularly evasive, the footballer needs to set up an offshore account. Chas Roy-Chowdhury of the Association of Chartered Certified Accountants told the Telegraph that such set-ups are particularly risky at this time:
“One of the ideas behind it would be that the personality might move offshore, hence receive any income or dividends tax-free. The Government is devoting significant resources, in a climate of cuts, to combating tax avoidance and this must be one of the areas where something could happen. When it comes to tax, if it looks too good to be true, it usually is. One needs to read the health warning when implementing such structures.”
Rich footballers who can afford to employ the very best lawyers and tax specialists will make hard targets for HMRC, but it looks as though they will take aim nonetheless. Any success will be a huge boon to the undermanned tax office. And a major warning to those utilising tax avoidance schemes.
Meanwhile, the Daily Mail is so sick and tired of overpaid footballers, their tax-dodging initiatives, and the terrible example they set to young people that they’re promising to stop covering the game altogether.