The taxation of image rights has long been a central feature of remuneration structures in professional sport, particularly football. Athletes and other public figures have relied on arrangements whereby payments for the commercial exploitation of a player’s image are received separately from employment income through dedicated image rights companies.
Reforms announced in the 2025 Budget signal a significant shift in HMRC’s approach. From April 2027, image rights payments connected to employment will be treated as taxable employment income and subject to income tax and national insurance contributions (NICs) through the PAYE system.
The change will affect not only the individual receiving the income but also the employer, who may face increased costs due to employer NICs.
The implications for football clubs, athletes and advisers could be significant. Existing contractual structures may require renegotiation, the role of image rights companies may diminish substantially, and uncertainty remains around the treatment of genuine sponsorship arrangements. As a result, the reforms could significantly reshape remuneration structures across professional sport.
The reform represents a shift away from HMRC’s historical acceptance of certain image rights structures and towards a statutory framework that treats employment-related image rights payments as remuneration.
Within the detailed provisions of the 2025 Budget is a measure that could fundamentally alter established practices in the sports industry. While the government’s wider tax reform package aims to raise approximately £2.3 billion, the changes targeting image rights payments may have disproportionate consequences for football clubs and players.
HMRC estimates the reform will raise around £40 million annually. Although relatively modest in fiscal terms, the measure could have substantial practical implications for player contracts, club finances and long-standing tax planning strategies within professional sport.
From 6 April 2027, image rights payments connected with employment will be treated as employment income. As a result, such payments will be subject to income tax and both employer and employee NICs through PAYE.
This would represent a significant departure from current practice. Football clubs have traditionally entered into separate agreements with players’ image rights companies for the licensing of personal brand and intellectual property rights.
Provided these arrangements reflected genuine commercial exploitation of a player’s image, payments were generally made outside the PAYE system.
Under the proposed legislation, however, where a connection exists between employment and the image rights payment, the tax advantages associated with these structures will no longer apply.
Although HMRC has yet to publish detailed guidance, early indications suggest that existing arrangements may also be affected from April 2027, potentially requiring widespread restructuring of current contracts.
Image rights arrangements have long relied on the reasoning established in Sports Club PLC (2000).
The case accepted that payments made for the commercial exploitation of a player’s image could, in appropriate circumstances, be separated from employment income. While not strictly binding, the decision has been influential due to the limited case law in this area.
Once new legislation takes effect, however, the relevance of this precedent may diminish significantly. Where statutory rules clearly define the tax treatment of image rights payments, those provisions will override previous reliance on case law.
The financial consequences of the reform could be significant.
Football clubs will become liable for employer NICs of around 15% on image rights payments that were previously outside the NIC regime. This alone could increase payroll costs considerably.
In addition, many player contracts are structured on a net-of-tax basis. If players face higher tax liabilities as a result of the new rules, clubs may need to increase payments to maintain agreed net income levels.
Players themselves will also face higher taxation. Income previously received through an image rights company and taxed initially within a corporate structure may instead be taxed as employment income at as much as the additional rate band (45%).
As a result, many existing contractual arrangements may need to be renegotiated or restructured.
One key issue that remains unresolved is the treatment of genuine third-party sponsorship arrangements.
In principle, commercial agreements that are entirely independent of a player’s employment contract should remain outside the employment income rules. However, complexities arise where sponsors are also commercial partners of the player’s club.
This overlap creates a potential grey area. Where sponsorship payments are linked, directly or indirectly, to a player’s employment with a club, HMRC may seek to treat those payments as employment income.
Further guidance will therefore be necessary to clarify how genuinely independent endorsement arrangements will be treated.
The image rights reforms form part of a broader series of tax developments affecting high-earning individuals.
From April 2029, some taxpayers who receive both PAYE income and self-assessment income may be required to settle a greater proportion of their tax liabilities through PAYE during the year.
For professional athletes with significant investment income, this could result in HMRC seeking to collect additional tax through PAYE coding adjustments. The practical operation of this system remains uncertain.
A further change is the mandatory payrolling of benefits in kind from 6 April 2027. For footballers and other high earners, this may create practical difficulties where PAYE deductions approach the 50% regulatory limit on deductions from earnings, particularly where agent fees are also involved.
Although HMRC has issued guidance in this area, employers are not required to follow a single prescribed approach, which may lead to inconsistencies in practice.
The language used in the Budget documentation is notable. The measure is described as addressing “the use of image rights to avoid employment income tax and NICs”.
This suggests that HMRC views many existing structures as primarily tax motivated.
However, image rights payments often reflect genuine commercial value. Professional athletes frequently generate substantial income from endorsements, sponsorships and promotional activities linked to their personal brand.
Nevertheless, the wording of the announcement may signal a shift in HMRC’s compliance strategy. Since April 2021, enforcement activity has focused largely on clubs rather than individual players, but this focus may broaden in the future.
Several technical issues will require careful analysis once draft legislation is published.
The definition of “connected with employment” will be particularly important. If interpreted broadly, the test could capture arrangements where clubs facilitate sponsorship opportunities or where players engage with brands associated with the club.
The treatment of existing contracts will also be significant. If no transitional rules are introduced, long-term agreements negotiated several years earlier could suddenly become substantially more expensive for clubs.
The reforms may also reduce the importance of valuation disputes that historically centred on whether payments to image rights companies reflected the genuine market value of a player’s image. Instead, disputes may focus on whether a payment is truly independent of employment.
The changes may also affect the future viability of image rights companies. If most payments from clubs are treated as employment income, these companies may become commercially redundant. This could lead to corporate restructuring, liquidation, or the transfer of intellectual property to alternative commercial entities managing endorsement income.
Another area that may require consideration is the potential interaction with the settlement’s legislation (ITTOIA, 2005). Historically, image rights companies have often been owned by players, sometimes alongside family members as shareholders. If income from commercial endorsements continues to be routed through such companies, questions could arise as to whether the arrangements constitute a settlement where income is effectively diverted from the individual who generated the underlying value of the image rights. While the settlements provisions have not typically been central to HMRC’s challenges in this area, the narrowing of the employment income rules may lead to greater scrutiny of how endorsement income is distributed through corporate structures.
Advisers may also need to consider whether broader anti-avoidance principles could apply where endorsement income is structured to fall outside the new rules. HMRC is likely to scrutinise whether arrangements are genuinely independent commercial transactions or instead arise by reason of employment.
From an employment tax perspective, the rules may operate similarly to existing anti-avoidance provisions targeting employment-related payments routed through intermediary structures. Payments connected with employment but made through corporate structures could therefore be treated as employment income for tax purposes.
There are also similarities with rules that apply to employment-related benefits provided through corporate arrangements. Under these principles, benefits received because of an individual’s employment may still be taxed as employment income, even where they arise indirectly through companies or other structures.
Finally, practical difficulties may arise in relation to PAYE operation and the 50% regulatory limit on deductions from earnings. Where players already face significant deductions and agent fees, the reclassification of image rights payments as employment income may result in liabilities that cannot be fully collected during the tax year, increasing the likelihood of year-end underpayments.
Although image rights companies may continue to play a role in genuine commercial activities outside the employment relationship, the direction of travel is clearly towards greater alignment of image rights payments with employment taxation.
Before April 2027, clubs, players and advisers will need to review existing contractual arrangements carefully to ensure compliance with the new rules. Sponsorship agreements may need to be clearly separated from employment structures, and remuneration models across the industry may require substantial restructuring.
For advisers, the priority will be reviewing existing contractual arrangements well in advance of April 2027 and identifying payments that may fall within the new employment income definition. Early restructuring may be essential to manage the increased employment tax and NIC exposure.
With significant changes on the horizon, now is the time for clubs, players and advisers to review existing image rights arrangements and assess how the reforms may affect current contracts and commercial structures. ETC Tax can assist clients in understanding the implications of the new rules and planning ahead of April 2027. Click here to get in touch.
