The Taxation of Professional Sportspeople
Taxation of sportspeople
The taxation of sportspeople performing in the UK or UK resident sportspeople performing elsewhere can lead to complex tax situations. Whether or not tax is due on income received in a country is determined by whether someone is classed as tax resident or not.
Tax Residence and Professional Sportspeople
The way in which UK tax residence is determined is by reference to the Statutory Residence Test (the SRT). This is a three-stage test which is assessed on a yearly basis to determine an individual’s UK tax residence position and how they should be taxed in the UK as a result. The general rule for sportspeople is that they are taxed in the country where they perform. However, it does not mean that they are liable to taxes just in that country.
Firstly, it is important to establish the basics of the SRT itself, which is a three-stage process, looking at automatic residency/non-residency, and if this is not conclusive, sufficient ties.
Once it has been established if the sportsperson is resident or non-resident under the SRT, the UK tax position can then be determined.
Non-UK residents coming to work in the UK.
A sportsperson may come to work in the UK for a particular sporting season and none of the automatic tests are met because they do not meet the criteria.
However, a player that has been around for one or two seasons (at one club or various clubs in the UK) may, under the SRT, be deemed UK resident.
The implications of this are that the sportsperson is then liable to UK income tax on their worldwide income, potentially including income from other clubs or other income (e.g. investments or property income). In some instances, sportspeople who are not domiciled in the UK can claim the remittance basis, so they are only taxed on what they bring to the UK, but this takes careful planning.
In other instances, because players will come over for a period in the UK and then return home, they may also retain tax residence status in their home country. This can make the tax position complex and they would need to consider the tax treaty between the UK and their home country to determine where they are ultimately taxable. They would also need to make the relevant claims and disclosures to HMRC on a UK tax return.
UK residents taking jobs overseas.
It is also equally relevant for sportspeople that live in the UK but who also go to play overseas. The special rules for sportspeople are in most tax treaties which allow the country where they are performing/playing to tax their income as well as the UK.
So, for example, if you had a UK sportsperson that went to play overseas, they could be liable to tax in both countries and would then need to claim double tax relief, so that they do not pay two lots of tax on the same income. The common misconception is that if someone is paying tax in another country, no UK tax liability arises, however, this is often incorrect and can lead to underpaid UK taxes with interest and potential penalties becoming due, in addition to potential HM Revenue and Customs enquiries.
Anyone that has this type of situation should seek professional advice to ensure they understand their tax position and that they have met all of their compliance obligations.
In addition, as a result of Covid, if you have been stuck in the UK or elsewhere for longer than anticipated, you may have acquired a tax residency in a country unintentionally. If you need advice concerning this, we are able to help.
For those sportspeople lucky to have an image that their club or third-party endorsers wish to use, structures can be put in place when they are negotiating a contract to ensure that the tax position is maximised, taking their own personal position into account.
It is therefore important for specialist advice to be taken at the outset.
If any of the above applies to you and you require advice or any further information, please get in touch.