Tax Talk: Non-UK tax resident sportspersons and entertainers – the UK tax position
With Glastonbury now over and Wimbledon just begun, entertainment is at the forefront of our screens. The pressure on sport stars and performers is intense, and it isn’t just their performance or prize money that’s taxable in the UK. Phil Clayton explains.
As with everyone, the UK tax system for sportspersons and entertainers begins with an individual’s tax residency position, determined under the UK’s Statutory Residence Test (SRT). For more information, see my previous guide UK Tax Residency for Individuals.
A UK resident individual will, by default, be subject to UK taxes on their worldwide income and gains. Depending on their domicile position, there may be available claims to be taxed on the remittance basis and the option to make an additional claim for Overseas Workdays Relief (OWR) to reduce their exposure to UK taxes.
There are further complications for many in the sport and entertainment world. I’m focusing specifically on non-UK tax resident individuals travelling to the UK for tournaments or events, and present here for only a short period.
Athletes and entertainers receiving specific UK earnings are liable to tax in the UK on these amounts. This is based on income relating to a ‘relevant activity’. So this could be a tournament or a concert in the UK.
For example, the record breaking £40 million of prize money that will be distributed at Wimbledon will all be liable to UK taxes on the individuals that are fortunate enough to receive it, regardless of their tax residency position. Similarly, the income Chris Rock & Dave Chappelle receive later in the year for their events at The O2 will be liable to tax here in the UK.
For those affected, even though it’s liable to UK tax, the income may also be reportable and taxed in their country of residence. They should check the relevant Double Tax Agreement carefully and claim tax credits where appropriate.
Just like the UK-specific earnings, UK-specific business expenses can usually be claimed to reduce the taxable profit. These might include direct flights to and from the UK, or accommodation throughout the stay in the UK.
The organisations that pay the prize money or fees must review the expected amounts and, should they exceed the personal allowance (£12,570 for 2022/23), withhold basic rate tax at 20% from the payment. On this basis, Wimbledon will likely be paying HMRC over £8 million in respect of the paid-out prize money alone.
The term ‘relevant activity’ is not limited to only the UK-specific earnings. Where individuals receive endorsements or sponsorship payments, the proportion relating to their UK activity is also liable to UK taxes.
Certain sporting stars receive sponsorship from a brand and, as part of the sponsorship deal, must wear the brand throughout training and tournaments. For UK tax purposes, the proportion of their time in the UK wearing those brands is deemed UK income and liable to UK taxes. It’s worth noting that a sponsorship bonus specifically for winning a UK tournament would be treated as fully UK income and be taxed here.
In some circumstances, it will be important to check the endorsement contract to confirm what exactly could be liable to UK taxes.
Looking at the worldwide endorsement income, HMRC suggests two ways to assess the proportion of the endorsement or sponsorship liable to UK taxes. These are the relevant performance days (RPD) method, or the relevant performance and training days (RPTD) method. A performance day is a day where an individual is performing in public, for a competition or for training purposes. A training day is three hours or more of activity spent training towards their sport where the public are not watching.
In effect, the calculation apportions the individual’s worldwide endorsement income to their UK days, based on their total days performing (and training) in the year.
Where an individual’s worldwide endorsement income is being brought into the jurisdiction of UK taxes, so can the apportioned related business expenses be claimed against this income. For example, where an agent charges a 10% fee on the endorsement income earned, a similar RPD or RPTD calculation should be used to apportion this expense against the income.
The UK tax system
Basic rate tax at 20% may be deducted from the direct payments at source. But, if the total UK taxable earnings exceed around £50,000, additional tax will be due to HMRC and that means completing a UK Tax Return. Regardless of the level of UK earnings it’s always a good idea to complete a UK Tax Return to correctly report the income and expenses, including the apportioned endorsement income. That way all UK tax is paid to HMRC.
If an individual receives income in the UK tax year to 5 April, they have until 5 October of that year to register with HMRC. The Tax Return, and any tax payable, is due by 31 January of the following year.
But, as always, there are some exceptions. For example, income relating to the 2012 London Olympic and Paralympic Games was specifically exempt from UK taxes.
What should you do now?
It’s key for entertainers, athletes and their agents to be well informed and aware of the UK tax implications of their travels. Ignoring the UK tax consequences and not getting the correct advice can lead to expensive penalties from HMRC.
There can be further complications when the funds are paid into a connected company or other entity instead. These are not covered here.
If you would like advice on any of the issues raised in this article, please contact Phil Clayton.