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Manchester United have settled a multimillion-pound tax bill on behalf of their star players including Wayne Rooney, The Times has learnt.
The resolution by the Premier League champions of a dispute with Revenue & Customs (HMRC) over image rights payments signals a lessening of hostilities between football and the taxman that has spanned nearly a decade.
HMRC has focused on clubs in England’s top league over what it considers tax avoidance of millions of pounds. It reached fever pitch in recent weeks with the collapse of Rangers under liabilities of up to £75 million and the tax evasion trial of Harry Redknapp, the Tottenham Hotspur manager, who was acquitted on all charges.
The crackdown is on schemes that allow a player to receive a proportion of his salary as image rights in a separate company, in some cases offshore, which incurs significantly lower rates of tax. The payments are made in exchange for the club being allowed to use the player’s image for promotional work.
While the system is legal, HMRC believes that many players have exploited it to avoid paying the top rate of income tax, which was raised to 50 per cent two years ago. A 2010 court case between Rooney and his former agent revealed that the 26-year-old striker received £1.5 million a year in image rights under his old contract with United. This represented nearly a quarter of his £6.2 million salary at the time.
While HMRC has accepted that a player of Rooney’s stature could command substantial image rights fees, the debate has been about what constitutes a reasonable proportion of total salary.
This remains a grey area, although there will be closer monitoring of the number of promotional appearances a player makes for his club to ensure that the amount ascribed is at least representative. Rugby union is thought to have agreed a cap, which would be harder to implement in football.
There have also been questions about the legitimacy of such a tax structure for lesser known players at smaller clubs. The Portsmouth administration case in 2010 revealed that the defender Sol Campbell’s deal on image rights was worth £1.56 million a year. United is not expected to reveal the terms of its settlement in its next set of accounts but it is understood to be less than the £6.4 million declared last year by Chelsea.
In a bond issue prospectus two years ago, United said its potential tax exposure was £5.3 million but this related to national insurance contributions. The club, like most in the professional leagues, is covered by an indemnity clause in players’ contracts against claims by the tax authorities over image rights. This would require the player to reimburse the club. However, it is unclear whether clubs would pursue the debt or write it off.
Manchester United’s deal with HMRC, which was negotiated separately from a Premier League agreement covering 16 clubs and based on turnover, means that most of the top 20 English teams have settled tax liabilities from 2004 to 2010. HMRC said it would continue to negotiate with clubs yet to settle, which include Manchester City.
Some feel that sport is an easy target. “It should be remembered that in the 2011-12 season the Premier League is likely to contribute in excess of £1 billion to the Exchequer,” Pete Hackleton, a senior tax manager in the Sports & Entertainment Group at Saffery Champness, said.
Face value boosts pay
Eric Cantona was among the first of the foreign imports to recognise the value of his image off the field. The money for image rights is paid into a company set up by the player, which is liable for corporation tax of up to 26 per cent instead of income tax at the top rate of 50 per cent.
Some structures allow for a director’s loan from the company to the player, which is liable for only 2 per cent tax as a benefit in kind. The top rate kicks in only when the loan is written off.
When it comes to cashing in the proceeds of an image rights company, capital gains tax can be avoided by a player living abroad for three years and paying the money to himself as a dividend.
In 2000 HMRC lost a case against Dennis Bergkamp and David Platt, who argued that image rights were bona fide commercial payments. Under greater scrutiny, however, clubs will have to account for individual appearances of players on behalf of their sponsors.
