United settle tax bill

Manchester United have settled a multimillion tax bill arising from a dispute on image rights.  Such rights allow a player to receive a proportion of his salary in a separate company, often offshore, which incurs significantly lower rates of tax in the form of corporation tax at 26 per cent instead of the top rate of income tax at 50 per cent.  Eric Cantona was one of the first players to recognise the value of his image off the field.

Manchester United have settled a multimillion tax bill arising from a dispute on image rights.  Such rights allow a player to receive a proportion of his salary in a separate company, often offshore, which incurs significantly lower rates of tax in the form of corporation tax at 26 per cent instead of the top rate of income tax at 50 per cent.  Eric Cantona was one of the first players to recognise the value of his image off the field.

United is not expected to reveal how much it has settled for, but it is thought to be less than the £6.4m paid by Chelsea.   In a bond issue prospectus two years ago, United said its potential tax contribution was £5.3m but this related to national insurance contributions.

Like most clubs United has an indemnity clause in players’ contracts that would require the player to reimburse the club for image rights claims by the tax authorities.   However, clubs may choose not to pursue the debt but simply write it off.

A 2010 court case between Wayne Rooney and his former agent revealed that he received £1.5m in image rights under his old contract with United, representing nearly a quarter of his salary at the time. While Revenue & Customs has accepted that a player of Rooney’s standing could command substantial image rights fees, the debate has been about what constitutes a reasonable proportion of total salary.   For example, Sol Campbell at Portsmouth had a deal worth £1.56m a year.

This remains a grey area, although there will be closer monitoring of the number of promotional appearances a player makes for his club.   Clubs will have to account for individual appearances of players on behalf of their sponsors.

Most Premiership clubs have now settled tax liabilties from 2004 to 2010.   One club which is yet to settle is Manchester City.