Taxing Sport

Tax doesn’t have to be taxing – or so they keep telling us. The following may disagree: Lewis Hamilton, Sergio Garcia and Andre Agassi.

Hamilton's case differs slightly from the others – having made his mark and a small fortune, he has moved, for private reasons, to Switzerland. There are, however, more benefits to this than the clean alpine air which Hamilton may be yet to discover; the route over the mountains is out of the reach of the clutches of the British Taxman.

Garcia has stated that he intends to participate in only one tournament in Britain this year as opposed to the five he played in the UK in 2001. The reason? A second appearance would almost certainly lead him to be taxed more than he could hope to earn from winnings. This may sound far-fetched but ever since 2006, when Agassi suffered defeat at the hands of HMRC, world sports players have started to turn their backs on the UK arena.

Parliament has enacted specific tax legislation for foreign entertainers and sportsmen. A tax is imposed on the profits of any person if these profits arise from any trade, profession or vocation carried on in the United Kingdom.

Agassi's case brought two main issues to the forefront. The first was that he argued that monies earned from his endorsements with Nike and Head Sport should not be accountable to HMRC. Nike and Head Sport were not and are not UK companies, nor do they carry out trade in the UK. However, they are connected to Agassi – during the Wimbledon tournament, he played in their clothing, thus advertising the businesses to the UK market – the House of Lords confirmed that the Revenue were entitled to a portion of his commercial endorsements.

Agassi was also forced to concede a second point – that appearing in one tournament alone can, in some cases, show you to be ‘carrying on a trade’ in the UK, and therefore accountable to HMRC on your earnings as a whole.

Sports players who are not liable to UK tax under any other rules are taxed so that a proportion of their overall earnings is taken. This is assessed by taking into account the number of UK appearances as a proportion of all appearances, rather than calculating the daily basis. For instance, in Garcia’s case, if he chooses to play only one tournament in the UK, and nine elsewhere, 1/10th of his total earnings will be accountable to HMRC. It is easy to see his frustration if he only plays for a week; 7/365th of earnings going towards the Revenue is a much smaller figure.

Given that the 2012 Olympics are now fast-approaching, it is a cause for concern that international players have to worry whether competing in UK competitions will stop them balancing their books. Fortunately, the Olympics themselves are exempt from the Revenue’s rules, presumably to adhere to the traditional spirit of the Games by promoting amateur players and athletes.

In future, however, if such allowances are not made, then international stars may well continue to limit their appearances in the UK, and eventually stop competing here altogether. Not only would this mean a loss in itself, but it would be extremely difficult to convince a sporting association to allow us to play host again. This has already happened in the Champions League; a major reason that Wembley was not chosen as the location for the final was because it could not conclusively say that the players taking part would not be taxed.

With all of this to consider, it looks as if HMRC may well have just topped the list of reasons why international sportsmen may well prefer to play elsewhere.

Published April 20, 2010

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