I agreed in one of the other threads to put up some info on how image rights work. Firstly, the financial aspects:
So let’s assume, for Illustration, that a club is signing a player and he wants £3m net per annum (the ask will often be in net, rather than gross terms, especially if the player is moving from overseas and the agent doesn't want to be bothered about how UK tax works - basically they put the onus on the club to prove the point).
The easiest way of doing this is by paying him a salary. Ignoring lower tax rates and bands, the player will pay UK income tax of 45% and national insurance of 3.25% (including the new social care levy). So every pound is worth 51.75p after tax. That means that to pay him £3m net, the club has to pay a gross salary of £3m / .5175 = £5.795m. The club then has to pay employer's national insurance at 15.05% plus apprenticeship levy at 0.5%. So the all in cost to the club is £5.795 x 1.1555 = £6.699m.
This is the basic annual cost, assuming no image rights.
So then the club proposes instead that it will pay the player a gross figure, plus a further (say) 20% in image rights. The image rights will be paid to a company to which the player has assigned the rights to his image (usually his agent will have advised him to do this years ago and most players now have these structures already in place). We’ll assume the company is in the UK and that it pays tax on those image rights at 20%.
The payment of image rights does not attract national insurance for either party, nor apprenticeship levy for the club.
So the revised package looks like this (you’ll have to trust me on the numbers as the maths for working them out is complicated - I wrote a complex formula years ago to work this out):
Salary of £4,428k - translates to £4,428k x .5175 = £2,292k net
Image rights of £4,428k x 20% = £886k gross less 20% tax = £708k net.
Total net is £3m so the player is in the same position (but £708k is in his image rights company, not in his own bank account).
But from the club’s perspective, the cost is:
Salary £4,428k x 1.1555 = £5,117k PLUS
Image rights of £886k (no levies).
Total cost is £6,003k.
So the club saves £696k (which is all, basically, reduced tax / levy payments to HMRC). Obviously there is an ethical angle there and I'm just presenting the facts without judgment. Point is that none of this is illegal, but like all tax avoidance strategies it will have its critics.
The numbers will vary based on the assumptions used - I.e. how much is paid in image rights and what the assumed tax rate is on those image rights - the higher the rate of image rights and/or the lower the assumed tax on them, the more can be saved. Clearly there is room for negotiation in all of this, but the key point is that it is more affordable for the club and helps them to get to the player's asking price more cost effectively.
That’s the basic maths of it.
But there are some practical issues to consider which I’ll address in the next post.
So let’s assume, for Illustration, that a club is signing a player and he wants £3m net per annum (the ask will often be in net, rather than gross terms, especially if the player is moving from overseas and the agent doesn't want to be bothered about how UK tax works - basically they put the onus on the club to prove the point).
The easiest way of doing this is by paying him a salary. Ignoring lower tax rates and bands, the player will pay UK income tax of 45% and national insurance of 3.25% (including the new social care levy). So every pound is worth 51.75p after tax. That means that to pay him £3m net, the club has to pay a gross salary of £3m / .5175 = £5.795m. The club then has to pay employer's national insurance at 15.05% plus apprenticeship levy at 0.5%. So the all in cost to the club is £5.795 x 1.1555 = £6.699m.
This is the basic annual cost, assuming no image rights.
So then the club proposes instead that it will pay the player a gross figure, plus a further (say) 20% in image rights. The image rights will be paid to a company to which the player has assigned the rights to his image (usually his agent will have advised him to do this years ago and most players now have these structures already in place). We’ll assume the company is in the UK and that it pays tax on those image rights at 20%.
The payment of image rights does not attract national insurance for either party, nor apprenticeship levy for the club.
So the revised package looks like this (you’ll have to trust me on the numbers as the maths for working them out is complicated - I wrote a complex formula years ago to work this out):
Salary of £4,428k - translates to £4,428k x .5175 = £2,292k net
Image rights of £4,428k x 20% = £886k gross less 20% tax = £708k net.
Total net is £3m so the player is in the same position (but £708k is in his image rights company, not in his own bank account).
But from the club’s perspective, the cost is:
Salary £4,428k x 1.1555 = £5,117k PLUS
Image rights of £886k (no levies).
Total cost is £6,003k.
So the club saves £696k (which is all, basically, reduced tax / levy payments to HMRC). Obviously there is an ethical angle there and I'm just presenting the facts without judgment. Point is that none of this is illegal, but like all tax avoidance strategies it will have its critics.
The numbers will vary based on the assumptions used - I.e. how much is paid in image rights and what the assumed tax rate is on those image rights - the higher the rate of image rights and/or the lower the assumed tax on them, the more can be saved. Clearly there is room for negotiation in all of this, but the key point is that it is more affordable for the club and helps them to get to the player's asking price more cost effectively.
That’s the basic maths of it.
But there are some practical issues to consider which I’ll address in the next post.
