»Ê¹ÚÌåÓýapp

Background

»Ê¹ÚÌåÓýapp Hull case (Hull City AFC (Tigers) Limited v HMRC [2019] UKFTT 227 (TC)) concerned payments made by the club to a newly signed player. »Ê¹ÚÌåÓýapp club and the player entered into a standard Premier League footballersâ€� contract. Four months later the club entered into an Image Rights Agreement (IRA) with the player’s personal service company (PSC), which purported to own the player’s Image Rights. This granted Hull the right to exploit the non-UK image rights of the player. In return, Hull paid an amount, equivalent to approximately 25% of the player’s employment income, to the PSC in respect of the player’s Image Rights. HMRC contended these amounts represented reward for the player’s services as a footballer and should have been treated as earnings from the employment. »Ê¹ÚÌåÓýapprefore, the club was liable to account for PAYE and National Insurance on those amounts.

»Ê¹ÚÌåÓýapp issues

»Ê¹ÚÌåÓýapp issue for the First Tier Tribunal (FTT) to determine was whether the payments made pursuant to the IRA were in respect of the player’s services as a football player or whether they were in respect of the player’s image rights. »Ê¹ÚÌåÓýapp FTT placed significant importance on the substance of the sums paid pursuant to the IRA rather than their form. It held that the existence of the IRA was not conclusive evidence that payments said to be made pursuant to it were made in respect of the player’s image rights. Hull were therefore required to show that, viewed realistically, in substance the payments were made in respect of image rights and not earnings as a reward for the player’s services as a football player. HMRC didn’t need to demonstrate the agreement was a sham for the FTT to find that the payments were in reality earnings.

»Ê¹ÚÌåÓýapp FTT dismissed Hull’s appeal. »Ê¹ÚÌåÓýappy held the payments to be earnings from the employment.

Nature of the payments

Paragraph 128 of the FTT’s judgment sets out the findings and inferences that were particularly relevant when taking a realistic view of the payments and considering their substance and not just their form. »Ê¹ÚÌåÓýappy were:

1. »Ê¹ÚÌåÓýapp club had no clearly defined intention or plan to commercially exploit the overseas image rights of the player.
2. »Ê¹ÚÌåÓýappre was no reliable evidence as to how the club arrived at the amount of the annual image rights payment to be made.
3. »Ê¹ÚÌåÓýapp club never obtained any valuation or opinion regarding the value of the image rights of the player.
4. As part of negotiations to secure the player’s services as a footballer for a further year, the club offered to increase the image rights payments without any contractual obligation to do so.
5. »Ê¹ÚÌåÓýapp club did not have the resources to exploit the image rights of the player.
6. »Ê¹ÚÌåÓýapp club had no real interest in commercially exploiting the image rights of the player.
7. »Ê¹ÚÌåÓýappre was little or no prospect of the club exploiting the image rights of the player.
8. At no point were the image rights exploited by the club.
9. »Ê¹ÚÌåÓýapp commercial value of the image rights was questionable.
10. »Ê¹ÚÌåÓýapp club did not believe the image rights of the player had any commercial value.
11. »Ê¹ÚÌåÓýapp club never addressed the question of whether it could commercially exploit the image rights.

»Ê¹ÚÌåÓýapp FTT found that the club viewed the sums payable under the IRA and the Playing Contract as part of an overall package which the player required and the club was willing to pay for the player to sign for the club. In reality, the payments were a reward for the player’s services as a footballer and formed part of his earnings. Permission to appeal the decision of the FTT was denied.

HMRC will continue to scrutinize the substance of payments made under image rights agreements. With material transactions there is an expectation of evidenced planning, valuations and distinct negotiations. HMRC expects clubs who make image rights payments to have the commercial desire, resource and ability to exploit those image rights. It will seek to substantiate that when investigating these transactions. See EIM00738 for further information on HMRC enquiries and EIM00739 for some examples of the type of information an employer should consider keeping to substantiate the commerciality of an agreement between an employer and an employee for the exploitation of image rights.