Soccer stars such as Wayne Rooney could save millions of pounds in tax if they sidestep HM Revenue & Customs (HMRC) using tactics employed by earlier footballers including Dennis Bergkamp and David Platt, tax lawyers and accountants calculate.
Philip Gershuny, tax partner at the lawyers Hogan Lovells, said: "If Wayne Rooney's image rights [which prevent unauthorised use of his name and personal attributes] are owned by a company, then he could well save several million pounds of tax. This is the total sum which would be saved over the duration of his new contract if he takes advantage of a legal loophole, allowing him to pay just 28pc corporation tax on image rights payments instead of the regular 50pc tax for high earners.
"It is only income that is subject to personal tax rates. However, a company only pays corporation tax, for which the top rate is currently 28pc – and set to fall next year – little more than half of the top personal rate, and there are no National Insurance contributions [NICs] to pay. This structure generates significant national insurance savings for the club, too.
"The current economic climate means that the Government is constantly looking for alternative ways to increase tax revenue. HMRC has been challenging what it perceives as tax-driven structures. In this respect, the fact that image rights structures can be beneficially taxed in comparison with normal salary payments makes them more susceptible to attack than other commercial arrangements.
"The defining point will be whether image rights are adjudged to be a part of the player's wages, or whether they should be treated differently."
John Whiting of the Chartered Institute of Taxation agreed: "It is quite common for sportsmen and entertainers to put various capital items – such as image rights – into a company. That allows income to flow to the company and be taxed there at corporation tax rates.
"Of course, if he draws income that would be subject to income tax – and also NICs if a salary, but not if a dividend. There are tax benefits in doing this, particularly as it allows spreading income into post-playing years. Many will see it as part of pension planning. For a non-domiciled footballer or entertainer, there are further possibilities as the company can be based offshore."
Chas Roy-Chowdhury of the Association of Chartered Certified Accountants added: "The main issue is that the income is held within the company. So, the footballer who wishes to access it, by way of dividend or remuneration, will need to pay the 50 per cent rate of tax. One of the ideas behind it would be that the personality might move offshore, hence receive any income or dividends tax-free. The Government is devoting significant resources, in a climate of cuts, to combating tax avoidance and this must be one of the areas where something could happen. When it comes to tax, if it looks too good to be true, it usually is. One needs to read the health warning when implementing such structures."
But George Bull of accountants Baker Tilly pointed out: "While HMRC accepts that sport stars have images that can be exploited, their concern is that image rights are being overvalued to avoid NICs – and, for non-doms, tax too.
"The difficulty is in trying to value the rights and therefore agreeing an amount that can legitimately be paid by the club. Because the image of each and every player is different, so is the value. By way of example it was reported that David Beckham was paid £125m when he joined LA Galaxy, which was probably 80pc image rights, 20pc playing. This could be justified because of the huge income that could be generated by exploiting his image.
"David Platt and Dennis Bergkamp won their image rights case years ago because they were using their image rights companies as pension funds and the rights payments were reasonable in all the circumstances."
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