Tax laws threaten UK’s standing in international sport- Stephen Dunham
May 17, 2012
To date, legislation has already been enacted in Finance Act 2006 for the 2012 Olympic and Paralympic Games in London to exempt non-UK resident individuals and organisations from income and corporation tax from the period from 30 March 2012 to 8 November 2012. However, HMRC have announced in their guidance notes that what they consider to be exempt activities under the legislation are not as generous as first thought, meaning organisations and individuals, especially athletes, will need to take care so as not to fall within the normal taxation provisions for non-UK residents.
Finance Act 2010 included specific exemptions for non-UK resident finalists of the 2011 UEFA Champions League held at Wembley, which exempted from income tax any employment or trading income arising on employees related to duties or services performed by them in the UK in connection with the final. A similar exemption has been included in Finance (No 4) Bill 2012 to apply to the 2013 UEFA Champions League final which will also take place at Wembley.
Budget 2012 also saw the Government announce that legislation would be included in Finance Bill 2013 to exempt non-UK resident athletes competing in the Glasgow 2014 Commonwealth Games from tax and the assumption is this is likely to follow that introduced for London 2012.
Another welcome, if surprising, move was also announced in Budget 2012 when it was stated that HMRC will revise its practice on the taxation of non-resident sports people to take training days into account when calculating the proportion of worldwide endorsement income subject to UK tax.
However, there are still questions around what constitutes training days and the non-inclusion of travel days that need to be addressed. In addition, the bigger issue of what is included in the endorsement income calculation on which the tax is assessed needs to be revisited.
Currently HMRC still consider the whole of these contracts relate to performance and make no allowance for the value of the athlete’s image so look to take into account 100% of the contract value in the apportionment calculation. A recent tax case in the US involving the golfer Retief Goosen saw the courts attribute a 50/50 split between image and performance for on course endorsement contracts and the case has not been appealed by the IRS. Therefore a movement by HMRC in this area would also be beneficial, though surely the long term solution must be to exclude endorsement income altogether from the calculation and only tax prize and appearance money.
So while specific exemptions are being given and there does appear some movement in HMRC’s attitude to the endorsement income issue, surely the time has come for tax exemptions to be provided for all major sports events to be hosted in the UK? Studies have suggested that the amount of tax collected from non-UK resident athletes on their endorsement income is around £7m per annum – a minute sum when set against the UK’s overall tax take. The substantial economic benefit to the UK economy that these events bring far exceed the tax lost and the social impact of hosting major events and being able to witness major sports stars in our country has on society means the current situation cannot continue.
Sport is a vital piece of this country’s make-up and if we are to continue to preserve this for future generations the taxation of major events and athletes cannot undermine this.
