SPORTS IMAGE RIGHTS TAX CHANGES IN THE UNITED KINGDOM
With effect from 6 April 2027, important tax changes will apply in the United Kingdom (UK) to sports image rights and arrangements using image rights companies (IRCs), to avoid/mitigate income tax, will be subject to greater scrutiny by HMRC, the UK Tax Authority.
From that date, any payments, which are often substantial – for example, the image rights of Erling Haaland of Manchester City FC are estimated to be worth annually the sum of £10 million (around Sw. Frs. 10.6 million) – for the commercial exploitation of sportspersons’ names, images and likenesses connected to their employment contracts will be treated as salaries, that is, employment income, rather than as separate corporate income.
In such cases, the tax burden will be significantly higher, as payments will be subject to PAYE (deduction at source under ‘pay as you earn’ arrangements) and Employee/Employer National Insurance Contributions (NICs).
Sportspersons will be subject to an income tax rate up to 45%, plus 2% NICs, compared to previous lower corporate tax rates of currently 25%.
Clubs employing sportspersons, especially those employing association football players, will also be subject to higher costs due to their obligations to pay employers’ NICs of around 15% on these newly treated employment payments.
HMRC will, in future, apply strictly a so-called ‘commercial realty’ test to sports image rights arrangements involving IRCs. Having IRCs will no longer, per se, provide a legal safeguard against higher taxes if the arrangements concerned are deemed to be linked to employment. Such arrangements, at the very least, need to be independent and have a commercial rationale.
In the meantime, it is advisable for sportspersons and their clubs to review existing sports image rights arrangements to ensure that they pass muster under these new UK tax arrangements.
We advise on all aspects of sports image rights arrangements and further information is available from our International Sports Law Consultant, Prof Dr Ian Blackshaw, and our Managing Partner, Dr Lucien Valloni, by emailing them at blackshaw@valloni.ch and valloni@valloni.ch respectively.