Industry News

UK: HMRC attacks football club's 'sham' image rights agreement with player

Thursday, 12 October, 2017

HMRC is challenging a scheme in which professional footballer Geovanni Deiberson Maurício Gómez transferred ownership of his image rights to a British Virgin Islands company, thereby avoiding UK income tax on the company's revenues from his former employer, Hull City AFC.

The dispute represents an attempt by the government to reopen the issue of image rights taxation in sport, 17 years after a tax tribunal decided that high-earning sportsmen and women were entitled to manage their image rights in this way, at least to some extent. That case – involving footballers Dennis Bergkamp and David Platt – led to a voluntary arrangement between HMRC and the professional football industry over what balance between pay and image rights was regarded as reasonable. The latest known version of the agreement, effective in the 2014/15 football season, allowed clubs to pay up to 20 per cent of their players' earnings direct to image rights companies, often set up offshore.

In January 2017, a report from the House of Commons Public Accounts Committee said that the rules allowing footballers' income from image rights to be treated as a separate revenue stream were being exploited for tax avoidance. The March Budget announced that new guidelines would be developed for image rights payments, and, in April 2017 HMRC announced its officials would be visiting all English Premier League, Championship and Scottish Premier League clubs over the next three years to check tax compliance, especially licencing payments to players for their image rights.

In September 2017, HM Treasury Financial Secretary Mel Stride announced that HMRC was conducting enquiries into 38 professional football clubs, 90 players, and 13 agents regarding offshore image rights.

The Hull City case is one of the first of these cases to come to tribunal. HMRC alleges that the agreement is simply a sham, whereby Hull paid Geovanni's offshore companies large sums in lieu of salary, merely to keep his income and national insurance contributions out of the UK tax net.

Hull City denies this. It argues that the burden of proof rests with HMRC to show that the transaction was not a legitimate one of the type approved in HMRC's longstanding agreement with football clubs. HMRC disputes that it must prove its case, arguing that it is entitled to issue directions on tax liabilities, and that it is incumbent on Hull to produce sufficient evidence to prove that, on the balance of probabilities, HMRC's directions and decisions were wrong.

In the first round of the dispute, the First-Tier Tax Tribunal has accepted some, though not all, of Hull's arguments. It maintained the principle that the taxpayer has the burden of proof of showing that a validly assessed direction by HMRC is incorrect. But it also stated that HMRC had some responsibility to serve its factual witness evidence (if any), so that the club can take it into account in finalising its factual evidence in support of its case.

'HMRC have made a number of assertions but without any indication as to how they propose to support them if needs be, in particular where they appear to relate to matters that may not be within the Appellant's knowledge or ability to produce evidence', commented tribunal judge Malcolm Gammie. 'It is appropriate that HMRC should now clarify their approach so that the appellant can take this into account ... in preparing its witness evidence. I shall accordingly direct that HMRC should serve the evidence of their witnesses of fact (if any) first' (Hull City v HMRC, 2017 UKFTT 0629 TC). 

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