Introduction: Why an Image Rights Company Costs an American More Than a Briton
For a British footballer, presenter or performer, an image rights company has been one of the most effective structures in the tax system. Commercial income for the use of a name, likeness or personal brand goes into a limited company, the company pays corporation tax at 25%, and the cash stays inside the company until the owner needs it. For an American holding a US passport in London, however, the same structure behaves very differently, because the IRS looks straight through it.
Furthermore, the ground is shifting on both sides at once. The Autumn Budget of November 2025 confirmed that from 6 April 2027 image rights payments related to an employment will be taxed as employment income, with PAYE and National Insurance on both sides. Meanwhile, the American rules that govern a foreign company owned by a US person tightened again for 2026. Consequently, any US citizen or green card holder in Britain who owns an image rights company, or who is being advised to set one up, needs to model both systems together. At TaxYork, we prepare the US and UK returns that these structures generate, and this guide explains what each side actually charges.
What an Image Rights Company Is and Why Britain Allowed It
An image rights company is a private limited company that owns or licenses the commercial rights in an individual's name, image, likeness, signature and personal brand. The individual licenses those rights to the company, and the company then contracts with clubs, sponsors, broadcasters and merchandising partners.
The structure survived because the courts accepted it. In the leading authority, Sports Club plc and others v Inspector of Taxes, the Special Commissioners held that genuine payments to companies holding two players' image rights were not disguised salary. Therefore, provided the arrangement was commercially justifiable and separate from the playing contract, the money escaped PAYE and National Insurance and instead met corporation tax.
How Britain Taxes an Image Rights Company Today
Until April 2027 the existing analysis still applies. Payments to the company are trading receipts, taxed at the UK corporation tax main rate of 25% where profits exceed £250,000. By contrast, the same money paid as salary attracts income tax at 45% plus 2% employee National Insurance, and a 15% employer charge for the club. Accordingly, the headline saving on a seven-figure commercial income runs into hundreds of thousands of pounds.
However, the freedom has limits that every owner of an image rights company should know. HMRC accepts arrangements only where the payments reflect genuine commercial exploitation, and in football a working practice has developed under which payments up to roughly 20% of a player's total earnings, and 15% of a club's commercial income in aggregate, tend not to be challenged. Above those levels, HMRC frequently opens an enquiry and argues that the excess is earnings under section 62 of the Income Tax (Earnings and Pensions) Act 2003.
Enquiries, Valuations and the Evidence HMRC Wants
Enquiry activity is heavy and rising. Reporting based on HMRC's own figures has described hundreds of open investigations across clubs, players and agents, with image rights structures a central theme. Practitioner analysis in the Chartered Institute of Taxation's Tax Adviser magazine sets out how those enquiries are run.
Consequently, the paperwork matters. A defensible image rights company holds a written licence from the individual, an independent valuation of the rights, evidence of genuine exploitation such as sponsorship campaigns and merchandising, and board minutes showing that the company, not the club, directs that activity. Where the file is thin, the structure fails on the facts long before anyone reaches the technical arguments.
VAT, Guernsey Registration and the Practical Detail
Two further points shape how the structure runs day to day. First, licensing image rights is a supply of services, so an image rights company whose taxable turnover exceeds the VAT registration threshold must register and charge VAT on its fees, which usually suits corporate sponsors that recover it and complicates arrangements with those that cannot. Second, some advisers register rights on the Guernsey image rights register, which created the first statutory register of personality rights anywhere. Registration does not change UK tax treatment, but it does help evidence that a distinct asset exists and has been licensed, which is exactly the point HMRC probes in an enquiry.
The April 2027 Reform That Ends the Employment-Linked Structure
The Budget of 26 November 2025 announced a decisive change. From 6 April 2027, image rights payments that are related to an employment will be treated as taxable employment income, subject to income tax and to both employee and employer National Insurance. The measure is expected to be legislated in the 2026-27 Finance Bill and to raise around £40 million a year.
In practice, the reform reverses the Sports Club position for employed sportspeople. Therefore a Premier League player whose club pays 20% of his package to an image rights company will, from that date, see the whole amount run through payroll at up to 47%, with a further 15% employer cost falling on the club. Moreover, the measure targets the link to employment rather than the company itself, so genuinely independent sponsorship, media and merchandising income earned outside an employment relationship remains capable of sitting in a company.
What Survives the Reform
Several categories continue to work. Self-employed performers, coaches, broadcasters and entrepreneurs who have no employer sit outside the employment-linked rule. Similarly, endorsement income negotiated personally with a sponsor, rather than with an employing club, does not become employment income merely because the individual also has a job. Nevertheless, the commercial substance requirements remain, and an image rights company without genuine activity will still be challenged under existing principles.
Why the IRS Treats Your Image Rights Company as a Controlled Foreign Corporation
Here is the part that UK advisers rarely model. A UK company owned by a US citizen or green card holder is a controlled foreign corporation, because more than 50% of it is owned by US shareholders holding at least 10% each. As a result, the American owner must file Form 5471 every year, and the penalty for failure starts at $10,000 per form per year.
More importantly, the income does not wait for a dividend. Under Subpart F, foreign personal holding company income is taxed to the US shareholder in the year the company earns it. Royalties sit squarely within that definition in section 954 of the Internal Revenue Code, and the IRS practice unit on Subpart F income for individual shareholders confirms how the inclusion is computed. Consequently, the UK deferral that makes an image rights company attractive simply does not exist for an American.
The Personal Service Contract Rule Closes the Obvious Escape
Advisers sometimes argue that the company trades actively, so the active royalty exception in section 954(c)(2)(A) should apply. However, a second provision usually decides the point. Section 954(c)(1)(H) treats amounts received under a contract to furnish personal services as foreign personal holding company income where the contract designates the individual who must perform, and that individual owns at least 25% of the company.
An appearance obligation, a photoshoot commitment or a sponsor day therefore converts the receipt into Subpart F income by design. Accordingly, the more the image rights company contract looks like a package of the individual's own services, the more certain the immediate US charge becomes. A de minimis rule exists where the relevant income falls under the lower of 5% of gross income or $1 million, but a meaningful image rights structure rarely qualifies.
Section 367(d) Catches the Day You Set It Up
Formation creates its own exposure. Where a US person transfers intangible property to a foreign corporation, section 367 treats the transferor as selling it for a stream of contingent payments, taxed annually as if royalties were received. Whether personal image rights fall within the statutory definition of intangible property is genuinely arguable, because their value is bound up with the individual's own services. Nevertheless, the safer route is a licence at an arm's length royalty rather than an outright assignment, and the analysis should be documented before the image rights company is incorporated rather than defended afterwards.
Section 962, NCTI and the Credit for UK Corporation Tax
Without planning, the arithmetic is punishing. A Subpart F inclusion is taxed to an individual at ordinary rates of up to 37%, and the individual receives no credit at all for the corporation tax the company has already paid in Britain, because that tax was imposed on the company rather than on the shareholder. The same profits therefore bear 25% in the United Kingdom and up to 37% in the United States.
The fix is the election under section 962, which lets an individual be taxed on the inclusion as if they were a domestic corporation. The rate falls to 21%, and a deemed-paid credit for the UK corporation tax becomes available. Because 25% exceeds 21%, the credit normally eliminates the residual US charge on an image rights company entirely, as our guide to the section 962 election for US owners of UK companies explains in detail.
Where NCTI Rules Apply Instead
Not every pound is Subpart F income. Profits that escape that classification fall into net CFC tested income, the regime formerly called GILTI, which the One Big Beautiful Bill Act rewrote for tax years beginning after 31 December 2025. The section 250 deduction is now 40%, giving an effective rate of 12.6%, and the deemed-paid credit rises to 90%. The high-tax exclusion still requires an effective foreign rate above 18.9%, so UK reliefs that cut the company's actual rate can quietly import an American charge, a trap we cover in Form 8992 and NCTI for UK company owners.
Taking the Money Out
Extraction adds a third layer. A dividend from the image rights company to its UK-resident owner meets UK dividend tax at 35.75% or 39.35% for 2026/27, above a £500 allowance. Furthermore, a director who simply borrows from the company faces a charge under section 455 of the Corporation Tax Act 2010 at the rate of 35.75% confirmed in HMRC's Company Taxation Manual and, on the American side, a deemed distribution under section 956, as our guide to director's loan accounts and US tax sets out.
Reporting: Form 5471, FBAR and Form 8938
The compliance load is substantial and arises whether or not tax is due. The company's bank accounts are foreign financial accounts, so an owner with signature authority reports them on the FinCEN Report of Foreign Bank and Financial Accounts once aggregate balances exceed $10,000. Additionally, shares in the image rights company are a specified foreign financial asset for Form 8938 purposes, and the IRS comparison of Form 8938 and FBAR requirements shows how the two overlap.
Finally, UK employment or self-employment income earned alongside the structure interacts with the foreign earned income exclusion and with Form 1116. Notably, a Subpart F or NCTI inclusion can never be excluded under the earned income rules, because it is not earned income in the American sense, however personal the underlying activity feels.
Case Study: An American Forward at a Premier League Club
Consider an illustrative client we will call Marcus, a US citizen playing in London on a £3.2 million annual package, with £640,000 a year paid to his UK image rights company. He owns 100% of the company, the licence and valuation file is properly prepared, and we convert at $1.34 to the pound.
Under the pre-2027 UK rules, the company pays corporation tax of £160,000 and retains £480,000. On the American side, the club's contract names Marcus personally for appearances and campaigns, so the receipts are foreign personal holding company income under the personal service contract rule. Without an election, his Subpart F inclusion of roughly $643,000 net of expenses is taxed at 37%, producing about $238,000 of US tax with no credit for the £160,000 of UK corporation tax already paid. In other words, the combined burden exceeds what he would have paid on plain salary.
With a section 962 election, the picture changes completely. The inclusion is taxed at 21%, about $135,000, and the deemed-paid credit for UK corporation tax of roughly $214,000 covers it in full. Consequently, his residual US liability on the image rights company profits is nil, although a later distribution will be taxed again to the extent it exceeds the amount taxed under the election.
From 6 April 2027 the structure stops working on the UK side. The £640,000 becomes employment income taxed at 47%, costing £300,800 instead of £160,000, and the club carries a further £96,000 of employer National Insurance. However, the American position improves, because UK tax at 47% now exceeds the US rate on the same income and generates excess foreign tax credits in the general category. The planning question therefore shifts from how to defer tax to how to use those credits, which is precisely the analysis we run before contracts are renegotiated.
What Americans Should Do Before April 2027
There is a clear sequence of work, and starting it in the 2026/27 tax year is far cheaper than reacting in 2027/28. Begin by separating the income streams, because the reform attacks the link to employment rather than the company. Consequently, sponsorship and media contracts negotiated independently of a club, and merchandising the individual controls personally, should be documented separately from anything the employer pays.
Review the Balance Sheet Before the Rules Change
Next, look at what is already inside the image rights company. Retained profits taxed under Subpart F in earlier years have been taxed to the shareholder already, and distributing them is normally free of a second American charge under the previously taxed earnings rules, although the UK dividend charge still applies. Therefore the order and timing of extraction matter, and they are easier to plan while the company still has trading income.
Fix the Elections and the Filing History
Finally, check that the section 962 elections were actually made on the relevant returns, because the election is annual and cannot be applied retrospectively without amending. Where an image rights company has been running for several years with no Form 5471, the exposure is reporting penalties rather than tax, and those penalties keep the assessment period open until the form is filed. Correcting the history therefore protects far more than the current year.
How TaxYork Can Help
We prepare comprehensive US and UK tax returns for high-net-worth clients whose commercial income sits in a company, including sportspeople, presenters, musicians and founders. Accordingly, our work starts with the documents: the licence, the valuation, the sponsorship contracts and the company accounts.
Modelling Both Systems Before You Sign
Next, we model the combined outcome under current law and under the 2027 rules, test whether a section 962 election helps, and check whether the high-tax exclusion is available. Where the structure no longer earns its keep, we quantify the cost of unwinding it against the cost of leaving it in place.
Filing and Catching Up
Finally, we prepare Form 5471, the Subpart F and NCTI computations, FBAR and Form 8938, and we correct earlier years where an image rights company was never reported to the IRS. Clients who tour or perform outside their employment should also read our guide to US performers and UK tax under Article 16, and consultants running a comparable structure will find our analysis of the UK personal service company for Americans useful.
Conclusion
An image rights company remains a legitimate way to hold and exploit commercial rights in Britain, and for self-employed performers and entrepreneurs it will survive the 2027 reform. For an American, though, the UK saving was always partly illusory, because Subpart F taxes the profits immediately and the corporation tax credit only reaches the shareholder through a section 962 election. Therefore the right response is not panic but arithmetic: model both systems, fix the elections, complete the filings, and decide well before April 2027 whether the structure still belongs in your affairs.
Contact Us
If you own an image rights structure, or your club or sponsor has proposed one, book a consultation with our US-UK specialists. You can also contact us at hello@taxyork.com or on 020 3488 8606, and we will review the arrangement and prepare the returns that follow.
Disclaimer
This article provides general information about the UK and US tax treatment of an image rights company and does not constitute tax advice. The case study is illustrative and uses simplified exchange rates and rounded figures. The April 2027 measure remains subject to the final legislation. Outcomes depend on individual circumstances, contracts and elections, so you should obtain professional advice before acting. TaxYork accepts no liability for action taken in reliance on this article.