Taxation of endorsement income
- Endorsement contracts for top sportsmen and women are typically split between “active” and “passive” income. Active income relates to a player’s earnings from their playing performance (e.g. tournament win bonuses, ranking bonuses etc.). Passive income relates to factors such as name, fame, image and likeness (i.e. unrelated to the players sporting performance at particular games, matches or events).
- Players’ endorsement income is apportioned to their UK income tax return based upon the number of matches/events they participate in the UK divided by the total number they compete in globally throughout the year.
- This problem is even more important now due to:
- HMRC increasingly taxing foreign players on all of their global endorsements (Before 1999 HMRC only taxed on their active income)
- The top rate of tax in the UK is now 50%.
- Increased awareness of players and agents.
- NGBs currently have to seek individual exemptions for events (e.g. 2012 Olympics).
- The income tax on endorsement income from global sports stars is a mere £7m, but benefits to the local and national economies far outweigh this. (e.g. the economic impact of the London Marathon is approx. £100m pa).
- Outside the UK only the US seeks a similar proportion of a non-resident sportsperson’s endorsement income but its top rate of income tax is only 35%.
Impact on sport
- This taxation regime acts as a major disincentive to non-resident sports players considering competing at events in the UK. For some players, the UK income tax liability is greater than the prize money and appearance fees if they win an event.
- Sport operates in a global market. Portable events can be moved from the UK and domestic events will see a diminishing player field as players choose to go to events in countries with a less punitive tax regime. Some high profile players are already choosing to play in events outside the UK.
- Current tax rules are a major disincentive to international federations awarding events to the UK.
- This system is threatening the long term viability of major sports events in the UK. Without elite players, broadcasting and sponsorship income to sport is reduced and the economic impact of events is also reduced. That is bad for sport, for fans and UK PLC given the key role that sport can play in helping to grow the economy. It runs contrary to the Government's policy to attract major events.
- We do not want to create tax breaks for rich sports stars, but this issue poses a real threat to the UK's ability to host great sports events (both those we currently host and events we are bidding for). Players are happy to pay UK income tax on all income linked to their actual performance in the UK.
- What we are worried about is being able to inspire youngsters by having great events in the UK, the deleterious effect on the economy of losing events and the loss of broadcasting revenue filtering down to the grassroots.
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