Overseas sports stars call for level playing field on tax

Usain Bolt

When it comes to taxing overseas athletes on their income, the world of sport isn’t a level playing field.

HMRC has the ability to choose the sporting events or individuals that can benefit from exemptions to UK tax, but this inequality is under the spotlight as advisers have begun negotiations with the government on the issue.

Advisers want all foreign sport stars’ overseas earnings to be protected from UK tax.
RSM Tenon is representing a number of individuals in negotiations with the Department of Culture Media and Sport, Accountancy Age has learned.

“The aim of discussions is to get an exemption for non-UK source endorsement income,” said RSM Tenon tax director Pete Hackleton.

But what is the value in such a move for the taxman and what would be demanded in return?

The compromise for HMRC would be that the tax revenues generated from having major sporting events based here would make up for any supposed loss to the Exchequer caused by dropping claims to overseas income.

“The rationale is that if this doesn’t happen, the UK will struggle to attract major events in future – the tax take from which (VAT on ticket sales etc) should more than cover any perceived shortfall due to the exemption. Hopefully, there will be some movement on this,” Hackleton added.

The negotiations come after the taxman was criticised after some of the biggest names in sport, including sprint star Usain Bolt and top golfer Tiger Woods, threatened to steer clear of the UK.

In the case of Bolt, he would have had to pay 50% tax on not only his UK income but a slice of his worldwide earnings would have been taken as well.

Under the UK tax system, non-resident sportspeople are subject to the basic rate of UK income tax on earnings due to their “performance” in the UK.

The taxman uses a test case victory against tennis star Andre Agassi as the legal precedent to deny exemptions, but in the run-up to major sporting events such as the 2012 Olympics it becomes even more important to know what falls in and out of the taxman’s net.

Earlier this month Hartley Foster, tax disputes partner at law firm Olswang, called the situation “absurd”.

The US operates on a similar model but the one key difference is that the level of income tax demanded is far lower than the 50% required in the UK.

Double tax treaties between the UK and other countries usually exempt individuals from taxation if they are in the UK for only a short time.

How­ever, under special rules for “foreign entertainers and sports­people” overseas athletes can still be subject to UK taxation.

The UK and other countries have difficulty collecting money from players because tax organisations with different policies have to operate alongside each other. What counts as their “earnings” represents another grey area in itself.

The length of a given player’s “season” is a big discussion point in calculating tax bills. For example, if a player earns £5m per season but the season is only six months.

If the player competes for a week in the UK, it is open to interpretation whether 1/52 or 1/26 of the pay packet should face UK tax.

After-dinner engagements, TV appearances and sponsorship generated after UK appearances must all be considered by the taxman.

A senior source at HMRC said the UK was “not the only country which goes
after sports stars’ worldwide income”, so efforts to win the exemption for all may not be easy.