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Taxing issues

The Champions League final at Wembley last month was the first event ever to be held in the UK with a special single event tax exemption. Next year, the Olympic Games will become the second. Rights holders now regularly demand that prospective host nations offer these concessions, and with demand from new markets that are willing to provide such guarantees (such as Russia and Qatar), the rest of the world has to follow. The UK’s overly punitive tax regime however, makes this especially tricky.

While Her Majesty’s Revenue and Customs (HMRC) do not seek to tax competitors in team sports, internationally-mobile sports individuals are subject to tax on prize money and appearance fees in the countries in which they compete. This is a long-standing and accepted rule. Subsequently, the individual will be subject to tax on their worldwide income in the territory in which they are resident, and if possible, can claim double tax relief for tax suffered overseas.

However two countries – the UK and the US – stand alone in seeking to tax global endorsement contracts as well as prize and appearance money. While many top athletes have their own endorsement company resident outside the UK and have contracts with other foreign companies, the Treasury will still seek to bring a proportion of that income into the UK tax net in relation to the time the athlete spends competing in the country. This leads to an absurd situation, where, for example, a top marathon runner, contracted into wearing a sports brand all year (in training and in public appearances) might compete in two races during that time – one in London, and one somewhere else. In this case, despite training somewhere else for almost 365 days a year and endorsing the brand non-stop during this time, as 50 per cent of their competitive performances would be on UK soil, 50 per cent of their worldwide endorsement value would be brought into the UK tax net.

As a result, many athletes have to effectively pay to play in the UK, as their UK tax bill often exceeds their UK earnings. Usain Bolt was rumoured to have turned down a £100,000 appearance fee when he pulled out of the Aviva London Grand Prix at Crystal Palace last year. The UK would have income taxed not only the initial £100,000, but, with Crystal Palace being one of his ten yearly races, one-tenth of his £6 million yearly global endorsement income too. With a total bill for more than £300,000, it’s not hard to understand why he said no.

Unless action is taken to change this legislation, many others are likely to follow in Bolt’s not inconsiderable footsteps. We estimate that the total tax collected on endorsement income from non-resident sportspeople every year is only around £7 million. This is so insignificant that the direct tax take from just one major event would more than make up for scrapping it – even before taking into account the wider economic benefit.

Pete Hackleton is a Senior Manager and Julian Hedley a partner in the Sports and Entertainment Group at Saffery Champness.

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