Olympics: tax issues for our athletes

When unknown 19-year old Rebecca Adlington was interviewed following her
record-breaking 800m freestyle swimming victory in Beijing, she said what
spurred her on was the promise of some designer shoes from her parents, and the
chance to trade in her clapped out Vauxhall for an Audi.

Much has been said about the success of our Olympians and, as we all hail
their success in Beijing, we have to marvel at their dedication and the years of
effort that culminates in their winning Gold.

As the manager of the Team GB’s sailing team explained, there are 13
different Olympic disciplines within sailing, holding 13 World championships in
13 different venues and in the first three months of 2008, Team GB transported
74 containers around the world just to enable the team to participate. So while
the government trumpets its investment in sport, the cost of sending this much
equipment across the globe, coupled with Adlington’s own comments, points to a
reality where the participants get little more than a subsistence wage.

Critics readily mention the commercial sponsorship for the athletes and
certainly this will significantly improve their income but usually only after
the event and their success. Witness American multiple record holder Michael
Phelps who reportedly earned a $500,000 (£250,000) bonus from Speedo for his
nine Olympic Golds. But from a tax perspective, this means that a medal winner
can go from being a basic rate taxpayer to a top rate taxpayer in one quick
step. Much of the income will disappear in tax and national insurance. Careful
tax planning needs to be undertaken to limit the amount the Government takes
back.

In days gone by, sports people were treated as special for tax and pension
purposes, so they could squirrel away most of their earnings into a pension
scheme which they could then draw on when they retired. The legislation
recognised that their careers were short and for many sports people they could
take their pension at age 35 or 40.

But in a move little reported, the then chancellor, Gordon Brown, changed the
rules so that all people were treated the same.

From 2010, if you have not reached your ‘retirement age’, you will not be
able to touch your pension until age 55. For a person in normal employment this
is generally acceptable, as they might reasonably expect to continue working
until that age, but what about the Olympic swimmer or cyclist?

Clearly they will not be able to continue their sport into middle age so what
are they going to live off? To make matters worse, a pension cap was also
introduced so that the amount that can be invested within an approved pension
scheme is limited, and again, no exceptions were permitted for athletes.

The one advantage successful athletes do have is that they can use their
image as a marketable commodity. They can be separated from an employment or
sporting activity and by careful planning, they can be exploited so that
sponsorship money is protected from 41% tax and national insurance. As a result
they may be taxed at a rate of say 28% or lower. Then the income can be paid out
annually to the sports person, thus limiting the tax exposure.

Depending on the level of income and where it is sourced, the athlete may
also have to worry about foreign taxes. Many countries like to retain taxing
rights for earnings from sports events in their country, although the Olympics
are exempted (even in the UK).

I first developed the concept of image rights when advising footballers in
the 1980s and I was instrumental in the now famous case of Jocelyn and Evelyn,
where HM Revenue & Customs lost the argument about taxing image rights
payments as if they were wages.

Famous people get paid for permitting the use of their image in connection
with commercial products and the payment they receive depends often on how
famous they are and not on what they actually do.

As sport and business becomes ever more global, it is necessary for us to
find international solutions for sports people that will enable them to
legitimately minimise their worldwide tax exposure and give them an opportunity
to spread their income over their lifetime. It is also important that they
maximise their commercial opportunities as their time in the limelight is short
and so we need to create a team to find sponsorship far beyond the shores of the
UK.

Working with the commercial staff who act for the athletes, our job is to
maximise not just the total income but also the net income. This means reducing
withholding taxes and domestic taxes as far as legitimately possible and
building up substantial funds to be drawn down at a time when the sports person
can no longer compete. Many of these athletes have no formal career to fall back
on and may have under-achieved their full potential in education because of
their supreme commitment to their sport. It is therefore essential we do our bit
to help them for the long term.

If the prime minister is truly committed to Team GB, then perhaps he will
reintroduce an early retirement age for sports people and relax the limits on
contributions or pension pots. Either that, or his recent supportive comments
about our medal winners may mean he is only interested in the photo opportunity
at the end.

If we really want a world beating Team GB in 2012 and beyond, we need to
support them with appropriate funding both for the participants and the support
teams and then we need to recognise their special circumstances within the tax
system, to ensure that what the government has given with one hand it is not
taking back with the other.

Andrew Shaw is national tax managing partner at BTG Tax,
a member of Begbies Traynor Group plc