UK Parliament demands crackdown on image rights 'tax avoidance'
Monday, 30 January, 2017
A report from the House of Commons Public Accounts Committee (PAC) says that the rules on taxation of sports and entertainment stars' income from image rights are being exploited for tax avoidance.
The current rules
The current rules, established by case law, allow image rights income to be treated as a separate revenue stream from the remuneration earned from their professional activities.
Most people with valuable image rights have created companies that receive the payments for those rights. Since a large number of them, especially top-level footballers, are not domiciled in the UK, they can incorporate their image rights outside the UK, which is where the payments will be made. This creates an incentive for resident non-domiciles (non-dom) to maximise the proportion of income that is deemed to be for image rights, in order to reduce the total tax liability.
Specialist Parliamentary team
During the committee's hearings, it was highlighted that HM Revenue & Customs (HMRC) has a specialist team looking at the potential abuse of the rules relating to image rights, which it described as the most significant tax risk among professional footballers. HMRC has open enquiries about image rights on 43 footballers, 8 agents and 12 clubs.
The English Premier League has a voluntary disclosure agreement with HMRC regarding image rights income, which HMRC uses to assess whether or not the balance between pay and image rights is reasonable. However, not all clubs are providing HMRC with data under this voluntary agreement.
At the hearings, PAC members asked HMRC's Accounting Officer whether the separate-stream rule could be amended. The reply was that the principle had been settled in law, but that he was willing to go back to ministers with a view to reforming the current law on image rights.
Accordingly, the committee urged the government to include legislation in the next Finance Bill to ensure that this tax revenue is no longer lost. The committee's investigation was, in fact, aimed at the wider area of taxation of high-net-worth individuals (HNWIs) – those with net wealth above GBP20 million. HMRC's HNW unit reportedly has around one-third of these 6,500 individuals under enquiry at any one time, but since 2012 has issued them with only 850 penalties, totalling GBP9 million. In the five years to 31 March 2016, it completed investigations into 72 of these people for potential tax fraud. Civil enforcement powers were used in 70 of these cases, and criminal investigation in only two. Ministers are considering whether or not to make HNWs report further information to help tax collection.