Payments made by Hull City Football Club to an overseas image rights company owned by footballer Geovanni Gomez were held to be employment earnings and therefore subject to Pay As You Earn (PAYE) and NICs, accountancy and tax advisory firm Smith & Williamson revealed.

The club failed to prove that the payments were not earnings, and the First-tier Tribunal (FTT) did not find any evidence to show that the overseas image rights had any commercial value or had been exploited.

HMRC contended that the payments made under this agreement were in fact part of the earnings of Mr Gomez, and should be subject to PAYE and NICs.

Hull City Football Club entered into an agreement in 2008 with an offshore company to exploit the foreign image rights of Mr Gomez. He played for the club at that time and owned the image rights company.

The club argued that the payments were made under the Image Rights Agreement and therefore separate to the earnings paid under the Playing Contract.

The FTT held that the correct approach was to take a realistic view of the payments by reference to their substance rather than their form. It found that the club did not satisfy the burden of proving that the payments were not properly characterised as the earnings of Mr Gomez.

Several important factors were listed by the judge. These included the lack of intention by the club ever to exploit the rights, the fact that no valuation had been undertaken, and the fact that the rights had not been proven to have any commercial value.

While the Image Rights Agreement was not found to be a sham, the payments were held to be employment earnings.