Come back please, Usain Bolt!

Stephen Hignett, Tax Partner, CMS

Some good news in the Budget for UK sport.

There has been quite a storm in the press in the last year or two over the way in which HMRC calculates the income tax due when non resident entertainers perform in the UK.  These rules are very broad and charge to tax not only performance payments and winnings but also a proportion of worldwide endorsement payments received by players or persons connected with them.

HMRC changed it practice some time ago now such that the amount of endorsement income which is subject to UK tax is determined by taking the total endorsement income of the sports person for the year and dividing that amount by the number of days on which that sport person actually competes, with income attributable to days spent competing in the UK being subject to UK income tax.

Take a marathon runner as an example.  Let’s assume she trains all year but runs only three marathons a year, one of which is the London Marathon (and the other two take place outside of the UK).  This method of computation would result in a third of our marathon runner’s endorsement income being subject to UK income tax, notwithstanding that she is not UK resident and spends only a handful of days in the UK running the marathon (and competing on only one of those days).

These rules have been deeply unpopular due to the fact that they have resulted in stars, such as Usain Bolt, deciding not to compete in the UK.  In some instances, HMRC’s interpretation of the rules would result in the sports person having to pay more in UK tax that he would be paid for taking part. 

In the Budget Press Release it has been announced that HMRC will revise its practice on the taxation of non-resident sports people and that, going forward, it will take training days into account when calculating the proportion of worldwide endorsement income subject to UK tax. 

Returning to the example of the marathon runner.  Were she to train for 50 weeks in the year and be present in the UK for the London Marathon for just one week, as a result of this change the amount of her income being subject to UK tax should reduce from one third to one fiftieth.

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