Ten 10 Tips: Image Rights
In our latest Top 10 guide for rugby players, RPA partner PKF Francis Clark bring you up to speed on image rights.
You will be aware of many players who receive payments for the use of their ‘image’. These will often (wrongly or rightly) be referred to as ‘image rights payments.’ Some individuals will receive them personally and others will set up a limited company and the income will be paid into this.
There are many considerations when deciding whether an ‘image rights company’ is right for you. For many players the answer will actually be ‘no’ regardless of whether they have a company already or not!
Don’t have a limited company because another player does or someone else suggests it. Do so only where it’s right for you!
The points below are intended to guide you and highlight areas of risk to ensure you are doing things correctly.
We will expand on the summary below later, but if you can’t answer yes to these questions, then a company structure for you is not the way forward at this time.
1 – Do you have a high profile?
2 – Do you have various income streams surrounding your image?
3 – Are you confident that you don’t need most of these funds to spend now? (i.e. for a house deposit).
4 – Is your end game to build the business and extract the funds ultimately when you’ve retired from playing rugby?
The term ‘image rights’ is not recognised in UK law. However, where a high profile individual has a business surrounding their image, HM Revenue & Customs (HMRC) recognise this.
1 – High profile
To begin to establish a business surrounding your image your profile must be high.
Consideration should be given to the following:
– Are you a Premiership rugby player?
– Do you play for your National team?
– Do you have a vast amount of twitter or Instagram followers?
– Do brands want to engage you as an ambassador or endorse you?
– Are you asked to make media appearances regularly?
Ask yourself this, ‘Are you a Marcus Rashford or Cristiano Ronaldo of the rugby world?’
2 – You must have a “business” surrounding your image. What constitutes a “business?”
HMRC’s position is that there must be a business/trade to qualify to have a company structure.
So what constitutes a business?
Various income streams and activity surrounding your image need to be established to constitute a trade taking place. These might include the following:
– Fees for media appearances
– Endorsement or ambassador deals with a sports or other brand
– Payments for photographs and signatures
– Separate contract with the Club for utilising your image/profile further
– Payments from your National team for utilising your image/profile
This is a key point. If you don’t have a business surrounding your image and just a single income stream from the Club for using your image, then there is a risk that HMRC could successfully challenge the tax position and charge you to income on the profits (at say 45%) rather than the company paying corporation tax (at 19%).
3 – Do you need the funds now?
One of the key things to ask yourself when considering whether a company structure is right for you is whether you need the funds now. For instance, do you need the funds to buy a property, pay for your child’s school fees or a new car?
If you need to extract and spend all or most of the income paid into the company then a company structure makes little sense. You will ultimately pay more in tax (company tax on the profits and then income tax on taking the funds out) and fees to have a company, than if you didn’t have one. This isn’t great tax planning!
The costs of running a company are higher than preparing a set of personal accounts and involves extra compliance costs with the preparation of company accounts and company tax return, together with other filings.
4 – What’s your end game?
Always have a long term plan before you consider a company structure. If you want to use the business funds to develop other business ventures and are happy to leave the money until such a time as you retire then this is a good way to shelter funds, with proper legitimate tax planning.
So, having read through points 1-4 above, here are some practical tips and considerations for you when running your business.
5 – Heightened interest from HM Revenue & Customs so get things right!
HMRC have a heightened interest in company structures that surround a player’s image.
If you are happy that a company is right for you, ensure that you get sound taxation advice from the start and that this continues as your business develops. Not every accountant has experience in dealing with accountancy and taxation in sport so ensure that you are getting the right advice.
Get legal advice on all contracts relating to the company. A contract in your personal name that is paid through the company would be viewed by HMRC as a personal contract. You would therefore pay tax on this at say 45% rather than company tax at 19%
Don’t make this mistake!
6 – What can your Rugby Club pay for using your image?
There is no standard amount formally agreed between Premiership Rugby Clubs and HMRC to confirm what amount a Club can pay for use of a player’s image. However, where there is a recognisable business built around a player’s image, a figure of between 10 – 15% of their total earnings from the Club might be acceptable.
Every player will have a different value to their image and a different profile, for instance an international player would ordinarily have a higher profile than a Premiership player so they could expect to command a higher percentage. There will always be exceptions.
To support any payment from the Club for using your image/profile, it might be advisable to obtain and maintain a formal valuation of your image and a business plan to show how the business surrounding your image is exploited and income generated. This can include details of the number of followers on Twitter/Instagram, sales generated by a specific item that you have put your name to, endorsement contracts in place and Club profile.
Please do not hesitate to contact us if you would like some assistance in this area.
7 – Practical points to look out for
If HMRC believe that the Club have paid a too high amount to your company for using the business surrounding your image, there will be tax liabilities here for both the player and the Club. The key is to stay within the guidelines and to have a business plan/valuation to support a higher payment e.g. where your profile is higher.
Read your contract! Occasionally this can include a clause whereby the player agrees to pay any tax/National Insurance/costs due if HMRC think the Club have made excessive payments to your company for using the business surrounding your image. This can mean that you will pay an expense that should have been paid by the Club if HMRC successfully challenge this.
Contracts with the company
If the business surrounding your image is run through a company, then all contracts and associated invoices should be in the company name. If they aren’t and are in your personal name, HMRC can assess these to income tax on you personally.
If this happens, HMRC are not only going to look at the one year of accounts. They can go right back through the earlier years, which can lead to a significant tax bill.
This is not something anyone wants at any point, but far worse when you have retired from playing and your income levels are potentially far lower than they have been.
8 – VAT and timely registration
Registration is required where income for using the business surrounding your image breaches the (current) £85,000 limit. Where income from endorsements or other contracts surrounding your image breaches this threshold, the business must register for VAT. This is regardless of whether your business is run through a limited company or a personal sole trade.
9 – What expenses can you spend the company funds on?
This is an area of contention amongst players as many receive different advice. We have heard of a number of different stories of what players believe they can spend this money on, which range from the weekly food shop to rounds of drinks on a night out to a new car!
Please ensure you get the right advice as many of these expenses will not be tax deductible or can give you a P11D taxable benefit!
The business carried out is surrounding your image so expenses should be specifically incurred in relation to that.
Below is a list of expenses that you could utilise the funds for:
– Agent fees for endorsement contracts/appearances
– Travel to/from promotional appearances including mileage, train fares and parking
– Food when working away
– Hotel and flight costs related to working away
– Employee costs where you employ someone or a family member to do promotional work or the invoicing or company bookkeeping.
– Marketing costs
– Website costs
– Pension contributions
Please note that if you buy a car using the company this would constitute a P11D benefit and a large tax bill. This would be the case where you purchase other assets through the business that are deemed to have a private use element.
10 – Growing other business ventures using your funds
Depending on what you have in mind, there is no reason why the funds in your company cannot be used to set up another business.
Please seek specialist tax advice before embarking on this because the way this is structured and what your new business involves can dictate how the entire structure is taxed, not just the new venture.
If you have any questions in relation to your set up or would like some assistance with your entity please do not hesitate to contact us, please contact Tamsin Tully / Andrew Squires on firstname.lastname@example.org or +44 (0)1803 320100 .
The contents of this article are provided for guidance only and professional advice should be obtained before acting on any information contained in it. No responsibility can be accepted by the author and their employer for loss occasioned to any person as a result of action taken or refrained from in consequence of these contents.