What sort of tax considerations arise in the private wealth affairs of sports and entertainment sector figures when it comes to working in the UK? This article explores potential answers.

This news service keeps an eye on the intersection of wealth management and sports. For example, banks such as UBS sponsor sports (in the case of the Swiss bank, Formula 1 motor racing). Sports stars, managers, agents and owners of sports brands and teams can also become high net worth individuals. They make an important client segment, as described here.

With sportsmen and women, their earnings' windows – including brand deals – can be relatively short. A soccer player, for example, tends to hit a peak in earnings around his or her mid- to late-20s; racing drivers might have slightly longer careers (at least now that racing is safer). Injury and changes in fashion mean that a player/manager/owner must make the most of what they earn and plan for a life beyond sport. This also means that they must think about the tax implications. There have been a few well-chronicled cases of players, such as Argentinian ace Lionel Messi, getting on the wrong side of tax laws. This situation is unlikely to become much easier as governments of all hues keep rates high.

To explore some of the terrain is David Ford, partner at Crowe, an audit, tax, advisory and risk firm. He advises HNW individuals including those in the sports world. In this article, he examines some of the issues, and suggests ideas. As ever, the usual editorial disclaimers apply to views of guest writers. Jump into the debate! Email tom.burroughes@wealthbriefing.com

When a foreign sportsperson enters the UK to participate in an event, the last thing on their mind is how their potential earnings are subject to tax. However, sportspeople will need to be aware of what they need to report, and how. It might sound counterintuitive, but tax may even cause some to question whether it is worth competing in the UK at all.

What needs reporting?
Many sportspeople are HNW individuals who perform in multiple jurisdictions around the world, frequently travelling from one country to another to attend specific tournaments. But aside from the physical and mental preparation of gearing up to perform, personal finance and tax must also be accounted for. In short, a sportsperson competing in the UK will be liable to pay UK tax on earnings linked to those appearances. UK earnings include prize winnings, appearance fees and endorsement income. 

UK tax legislation states that if a payment made to a sportsperson is more than the UK personal allowance (currently £12,570, ($15,818), the organisation paying the income will need to deduct 20 per cent tax from the payment and send this to HM Revenue and Customs. This is withholding tax and applies to any payments also made to third parties connected to the appearance.  

As an example, if they were to receive £50,000 in prize winnings from an event, they would receive £40,000, with the balance of £10,000 being paid to HMRC.

How to report
If an individual’s gross income is likely to exceed the basic rate of income tax (currently £50,270) they will be required to file a UK tax return and register for self-assessment. They will also need to notify HMRC by 5 October following the end of the tax year of the performance – e.g., 5 October 2024 for the 2023/24 tax year and pay any additional tax due to HMRC by 31 January 2025. 

The cumulative amount of time spent in the UK becomes a decisive factor in determining tax exposure, based on residency grounds. A sportsperson entering the UK for a handful of short events will only need to report their UK earnings on their tax return as they will be a non-resident for UK tax purposes. An individual will only become a UK tax resident if they meet certain requirements which include residing in the UK for 183 days or more. 

When reporting the income on their UK tax return, the individual will be able to claim a deduction for any qualifying business expenses which would include travel, accommodation and coaching costs that relate to their work. This can sometimes lead to a refund of the withholding tax originally deducted at source.

Complexities with sponsorship/promotional income 
As mentioned above, individuals are also subject to UK tax on a proportion of their worldwide sponsorship income relating to their UK performance.  

HMRC normally recommends using either the Relevant Performance Days (RPD) or Relevant Performance and Training Days (RPTD) methods to calculate the proportion of their sponsorship income liable to UK tax. They are also able to use any other suitable method but will need to provide reasons why they have used that method with supporting evidence. 

Relevant Performance Days (RPD)
An RPD is any day an individual is:

-    Competing in an event;
-    Practising their given sport in public; and
-    Undertaking a public event for sponsors.

The UK element of the global sponsorship income is calculated as follows:

--  UK performance and promotional days/worldwide performance and promotional days x income from endorsement contract; 

Relevant Performance and Training Days (RPTD)  
An RPTD is any day an individual:

--  Spends three or more hours in physical activity where the activity contributes towards performance of sport;
--  This must include physical activity and each session should last one hour or more to count towards the three-hour requirement; and 
--  This includes practising the sport they are endorsed for or general fitness. 

A RPTD cannot include:

--    Travel time;
--    Time spent injured or resting; and 
--    Non-physical training.

If an individual is both training and competing on the same day, the day only counts once and is classified as a performance day.

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Example   
A golfer, who doesn’t live in the UK, plays in 10 worldwide events, with one of these being in the UK. Total performance days were 30, with three being in the UK.

Total training days amounted to 200, with 10 being in the UK. 

The golfer earns prize winnings from the UK event of £50,000 and also earns worldwide sponsorship income of £500,000. 

RPD method

3/30 x £500,000 = £50,000 UK element 

RPTD method

10/200 x £500,000 = £25,000 UK element

Therefore, it will be more beneficial for the golfer to adopt the RPTD method. However, they will need to have supporting evidence for these training days. 

Evidence can include:

--    Competition agreements;
--    Training diaries;
--    Practice and competition schedules;
--    Daily training logs; and 
--    Other daily records.

Is it worth competing in the UK?
Using the same example as before, let’s say that the golfer does not make the cut and, as a result, does not earn any prize winnings. Even though the golfer has not earned any prize money, they will still be liable to UK tax on a proportion of the worldwide endorsement income because they have competed in the UK. 

A sportsperson may believe that they will win the event or earn prize money and therefore the trip to the UK is financially worthwhile. However, they would need to be wary of the fact that if they don’t earn any money, they will still be liable to UK tax on a proportion of their endorsement income using a similar calculation to the one above. As a result of this, they could be financially worse off for competing in the event before they factor in the costs of travel, accommodation, and any other competition-related costs such as coaching and caddy fees. 

Most countries only tax an individual on any money they earn from the event, such as prize winning. The UK is, however, one of few countries that taxes all UK prize winnings plus a proportion of endorsement income. Therefore, it does raise the question; is it worth a sportsperson travelling to the UK to participate? The UK could be missing out on some of the best sportspeople competing here because of the tax rules. 

Conclusion  
A few key points to summarise:

--  A sportsperson entering the UK will be liable to UK tax on any income relating to their UK appearances including a proportion of their worldwide endorsement income.

--  If earnings are above £50,270, the individual will need to report this income on a UK self-assessment tax return and register for self-assessment by 5 October following the end of the tax year the earnings related to. E.g., Income received between 6 April 2023 and 5 April 2024 = 5 October 2024.

--  HMRC normally recommends using the RPD or RPTD method for calculating the UK proportion of worldwide sponsorship income. Any other reasonable way of calculating the proportion is accepted but evidence will need to be recorded and submitted along with the claim.

--  Supporting evidence for calculating the UK element of the sponsorship income will need to be kept which can include training diaries, competition schedules and daily training logs.

About the author

Ford joined the private clients team at Crowe and became partner in 2007. His clients include HNW people in the sports, media, and entertainment sectors, which included foreign individuals performing in the UK. He advises people around several structures; he also has experience in advising UK and non-UK domiciled individuals on income tax, capital gains tax, and inheritance taxes.