Many of the Premier League’s top stars are living in fear that they could be hit with huge tax bills if HMRC win their latest battle to rule that image-rights payments should be treated as income and therefore taxed in the same way.
Wayne Rooney, one of Manchester United’s most prolific stars, could be facing a tax bill of up to £1 million as HMRC step up their game.
A huge majority of footballers have image-rights deals written into their contracts which can signify up to a third of their salary.
The image-rights payments are paid into an image-rights company which has been set up solely to house these payments.
The payments are then taxed as corporation tax at a mere 21% in comparison to the 50% tax these payments would attract should they be taxed as income.
HMRC highly regard this as a tax dodge.
Although the news that HMRC is looking to class these much publicised payments as income is not recent news, it has emerged that rows are erupting between the clubs and players as to who should have to cough up the cash.
Manchester United and their players, for example, could be accountable for more than £17 million for payments since 2001.
However, the club believe they will only be liable to pay £5.3m if the ruling goes HMRC’s way and that players will be expected to cough up the rest.
A United spokesman confirmed this by saying “It would be correct to assume that the players and their companies are liable for the income tax”.
On the other hand the PFA, the players’ union, insists that responsibility should lie with the clubs and is attempting to seek clarification of this from the taxman.
“It is the clubs who draw up the contracts. We are trying to get a meeting with the HMRC and this is something we will add to the agenda. We know they are looking into image rights – regarding the validity of them – and it’s something of which we’ve made our members aware” said Gordon Taylor, chief executive of the PFA.
The argument the players could have is that they are most likely to have had nothing to do with their contract negotiations, instead leaving it to agents and accountants. Nevertheless, this does not mean that the individual player would not be liable for the additional tax.
The only thing this would prove is that they themselves have not deliberately attempted to avoid or evade tax.
If the amount suspected to be owed by Manchester United is mirrored across the other 19 Premier League clubs, then HMRC could be due for a windfall of over £200m.
Understandable therefore as to why HMRC are so keen to tie this matter up once and for all.
Rooney, one player who may actually be able to justify his image is in fact worth £1.52 million per year, has earned £6.08 million in image rights since he signed his contract with Manchester United four years ago.
Having been taxed at the corporation tax rate of 21%, HMRC will have earned £1.27 million. However if this were to be classed as income, the taxman should have received £2.4 million leaving a shortfall of approximately £1.15 million.
Whilst players have not actually done anything illegal, the reclassification of these payments could cost the millions.
With HMRC so desperate to claw back money for the Treasury coffers, this seems to be a successful way of clawing back a big chunk of tax.
Manchester United have confirmed in their prospectus to bondholders they would be liable for National Insurance contributions which amount to £5.3 million and confirm they have an indemnity with their players’ image-rights companies against tax claims from HMRC.
Whilst Manchester United may be safe in this respect, clubs who don’t have such a security written into contracts may have to foot the bill.
As financial problems within the footballing industry has been well documented recently, it will come as no surprise that HMRC’s campaign against football could spiral into more problems and a surge in clubs going falling into administration.