Overseas athletes and UK income tax

1 Jul 2022

tennis and UK tax

Pete Hackleton and James Taylor look at the tax implications for athletes and entertainers who perform in the UK.

Ordinarily, those temporarily visiting the UK to carry out work duties via employment or self-employment do not suffer UK taxation – or they are at least usually protected from UK tax by a double tax treaty. This treatment does not, however, extend to sportspeople and entertainers – who are taxable in the UK on a proportion of income earned in connection with their performance in the UK.

A number of countries around the world have adopted a set of rules that sit alongside their own domestic tax legislation for visiting performers and the UK was one of the first to enforce this.

UK tax rules for non-resident entertainers and sportspeople

Anybody who pays a performer for an appearance in the UK has an obligation to withhold basic rate (20%) income tax if the gross annual payment exceeds the personal allowance (approx. £12,500). This withholding also applies to payments made to third parties in connection with a performance, unless they are part of the middleman scheme. This will catch payments made to image rights companies or personal service/loan out companies.

If the taxpayer’s net profits exceed the personal allowance and basic rate band in a tax year (ie are in excess of approx.£50,000), it is likely that additional taxes will be due and the performer then has an obligation to register for self-assessment and file a UK tax return. Via their tax return, the individual will be subject to income tax at the graduated rates (20/40/45%) after deducting their applicable business expenses.

In certain circumstances, the level of deductible expenses (including travel, accommodation, coaching etc) might be such that it is possible to obtain a refund of the withholding taxes deducted at source.

Most countries only tax the income directly related to the local performance, such as prize money and appearance fees. The UK, however, is one of a minority of countries who also seek to apportion part of an athlete’s global endorsement income to their UK performances, and collect UK tax on the UK-related proportion of this income.

How is UK income calculated for athletes and performers?

All prize money earned from UK performances is subject to UK taxation in full, as are UK appearance fees and bonuses paid by sponsors which specifically relate to UK tournaments (eg winning Wimbledon).

Endorsement retainers are also subject to UK taxation, but as these are paid annually and are not typically country specific, they must be apportioned to the UK.

HM Revenue & Customs (HMRC) suggests one of two methods to calculate this UK apportionment – the Relevant Performance Days (RPD) method or the Relevant Performance and Training Days (RPTD) method.

A performance day is one which is spent performing in public for any amount of time, be it in competition or for training purposes. A training day is where three hours or more of physical activity is spent training towards the chosen sport and which the public aren’t invited to watch (eg time spent in the gym, road running, or practicing an athlete’s specific sport).

The apportionment calculation will use one of the above methods to work out the number of UK days over the number of worldwide days of which the total worldwide endorsement income will be multiplied by.

Endorsement Income x UK Days / Worldwide Days = UK taxable income

For example, if an athlete spends 100 days of the year performing their sport in competition, of which 10 are spent performing in the UK, under RPD 10% of their worldwide endorsement income would be subject to UK tax. If, however, the total number of performance and training days was 300 and only 5 additional days were spent training in the UK, then the RPTD fraction of 15/300 would mean that only 5% of the athlete’s worldwide endorsement income would be subject to tax in the UK.

The taxpayer can choose which method to use year by year but, given that a non-resident athlete is likely to spend most of their time training outside of the UK, the RPTD method is usually the preferred option. A clear diary should be kept as HMRC regularly ask to see evidence of the worldwide training days.

Criticism of the UK approach to taxing athletes

HMRC’s decision to tax endorsement income has been met with criticism over the years as it often deters athletes from competing in the UK.
One of the most extreme examples is golf, as a player will typically not receive any prize money if they do not make the cut but can still be taxed on a proportion of their worldwide endorsement income just for playing the first two days of a competition.
Similarly, a singles player knocked out of Wimbledon in the first round will receive approximately £50,000 in prize money but could still end up going home with a net loss if they have considerable global endorsement income – as illustrated in the following example:

table

In this scenario the UK income tax is almost 100% of the UK prize money and after expenses creates an effective tax rate of 125% against the net cash profit. This means that the athlete goes home nearly £10,000 financially worse off than when they arrived.

The UK tax can sometimes be offset against local taxes in the home territory, but for those who live in low tax jurisdictions this might not be possible or might lead to a significant waste of foreign tax credits.

Professional golfers from outside the UK will often only come to the UK to play in ‘big money’ UK events such as The Open or the LIV golf series which guarantees a financial return. This means that other tournaments won’t have the ability to attract the best talent.

Likewise, several tennis players choose not to play at Queens, Eastbourne, Nottingham or Birmingham, instead playing in grass court competitions outside of the UK in the lead up to Wimbledon. Rafael Nadal has openly said that he wouldn’t play at the prestigious Queens tournament because of the tax implications, whilst Roger Federer has always played at Halle, Germany, where the tax rate is only 15.825% compared to the UK’s 45% additional rate of tax.

Usain Bolt was famously upfront about his decision not to race in the UK as often as he would have liked on the basis that he would have been hit with a huge UK tax bill, many times bigger than any appearance fee. For somebody in his position who might have only performed a handful of times a year, he could have seen almost a quarter of his c.$10m Puma deal at risk of UK tax just for competing in the UK for two or three days in a year. This has since been relaxed slightly with the introduction of the training days basis of apportionment, but this still has a big impact on top level athletes and the decisions they make on where to compete.

Tax exemptions for athletes

As part of the bidding process to host a Summer Olympic Games, the International Olympic Committee (IOC) insists that the host country provides a full exemption from income taxes for performances by the athletes and services provided by other personnel in the relevant jurisdiction throughout the competition.

In line with this, a special exemption was introduced for the 2012 London Olympic and Paralympic Games, relieving income earned by the athletes from income tax or corporation tax in connection with the games. A similar exemption applies in connection with the Birmingham 2022 Commonwealth Games. These exemptions are not, however, handed out regularly.

In 2008, Michel Platini confirmed that Wembley Stadium had lost its bid to host the 2010 Champions League Final “because of taxes”. UEFA were concerned that all of the players attending the final would be hit with large tax bills and therefore chose Madrid for the 2010 final instead. As a direct result, the UK government offered to provide an exemption from taxes for the players as part of a successful bid to host the 2011 final.

For the UEFA 2020 European Championship competition held across Europe, the UK government once again applied an exemption for the athletes performing in the tournament at UK venues. This included the semi-finals and finals but only applied to non-UK residents.
In the future, it is likely that the UK will need to continue offering similar exemptions if it is to be successful at bidding for major one-off tournaments, in particular those related to football and athletics. However, it appears unlikely that competitors at Wimbledon or The Open will be receiving similar relief anytime soon.

Tax rules for athletes around the world

The US and France both request that withholding taxes are paid and tax returns filed including a proportion of worldwide endorsement income.

As fast as Emma Raducanu’s $2.5million cheque was handed to her for winning the 2021 US Open, it was swiftly taken away again. This was most likely for security reasons but also possibly because the IRS would have been itching to withhold their 30% federal taxes from that amount at source.

Various other countries around the world will insist that withholding tax is applied to prize money and directly attributed performance income, but do not request for a tax return to be filed or additional payments to be made personally by the individual.

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