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HMRC internal manual

Employment Income Manual

Employment income: general: payments for “image rights”: HMRC enquiries

For the purposes of the charge to tax as employment income, we are only concerned with arrangements involving payment for image rights where there is also an employment relationship between the organisation that is the payer and the individual concerned. Almost exclusively, that means professional team sports in which the “brand” that the payer is seeking to promote is recognised by the team name.

The individual is employed primarily to perform duties as a player of that sport within the context of being a member of the team. Accordingly, the remuneration offered to the player under the contract of employment will relate to the performance of those duties but the contract may also stipulate other requirements regarding behaviour generally in representation of the team.

If there is an agreement between the employer and an image rights company (IRC) under which the IRC contracts to supply to the employer certain promotional services of the player in return for fees paid by the employer to the IRC then there must be commercial justification for differentiating between payment for performance of the duties of the employment and the promotional services (“image rights”).

Typically, such agreements will be negotiated to run concurrently with the contract of employment. If the contract of employment is renegotiated before the end of its designated term, the image rights agreement may also be reviewed. This may create the impression that the total amounts payable by the employer are considered as an overall package, blurring the distinction between the amount that is the reward deriving from the employment and the amount relating to the promotional services. Nevertheless, the terms of the contract of employment and any agreement relating to image rights should be distinct and accordingly should each reflect commercial reality. Best practice may involve having evidence to demonstrate how the amounts in respect of image rights were arrived at, including records monitoring the value achieved by the employer through exploitation of those arrangements. For additional examples of issues to consider, see EIM00739.

The Sports Club case (see EIM00734) was concerned with arrangements agreed in 1995. Over the intervening period, the structures put in place for the exploitation of opportunities to generate commercial revenues have become increasing significant and sophisticated as part of the operation of professional sports organisations. In addition, given the global coverage and television exposure of the English Premier League, major football clubs now have extensive marketing internationally.

Individuals are increasingly aware of the potential for generating income by exploitation of their public profile, including those who do not have a comparable level of celebrity as Evelyn and Jocelyn had as established international players. There are also many more individuals employed by organisations in the UK who were previously employed elsewhere in the world and may have an established IRC that was created in a jurisdiction that recognises image rights.

Although Sports Club did not recover sufficient value from its exploitation of the image rights of Evelyn and Jocelyn to match the amounts paid under the promotional agreements, we now expect that organisations will have sufficient experience and expertise to ensure that such agreements are commercially robust. Specifically, we expect that when entering into agreements that provide the organisation that is the employer of the individuals concerned with rights over the exploitation of each employee’s image for promotional and merchandising purposes, the employer will have proper regard to the commercial revenues that the employer expects to achieve.  In order to clearly distinguish between remuneration and image rights we expect the respective agreements to be demonstrably based in commercial reality.