HMRC handicaps sporting events
Can the UK survive as a major player in international sporting events without changes to the way events and competitors are taxed, asks Stephen Dunham of Dunham Consulting.
As the UK prepares to host the 2012 Olympic and Paralympic Games, the long-term ability to compete to host major sporting events continues to be undermined by HMRC’s attitude and strategy to the taxation of the organisers and competitors at these events.
The danger is that the UK will be seen as “closed for sport”, deterring organisers from wanting to consider the UK as a location for their event and prompting athletes to question whether participation in an event staged in the UK should be included in their schedule.
The impact of losing or not being able to attract the world’s best events and athletes to the UK needs to be measured in more than pure economic terms alone. The recent enquiry by the Riots, Communities and Victims Panel into last Summer’s riots identified a lack of “belonging to society” as a key factor, especially in the young and sport, more than any other activity, builds bridges, brings together all levels of society and develops a level of inclusion for the benefit of all.
So, how do we find ourselves in this position?
Taking athletes first, the revenue authorities, in line with most other countries, tax non-UK resident competitors on prize money and appearance fees attributable to matches or tournaments held here. However, in addition to this, HMRC also seeks to tax a proportion of an athletes’ global endorsement income following their victory in a tax case against Andre Agassi back in 2006. The only other country that applies the same treatment to worldwide endorsement income is the US. In addition, since their victory, HMRC has significantly changed the way it calculates how much of this endorsement income should be liable to tax. Initially a proportion of overall deals which related to non-playing services (the “image”) was excluded from the UK tax calculation, with the “playing” element simply pro-rated based on time spent in the UK in a particular tax year. However in recent years, HMRC has sought to take a different approach by asserting the whole contract relates to “playing” services and apportioning on the basis of the proportion of the events an athlete takes part in, which has the overall effect of yielding a higher return for HMRC.
The impact of these rules on athlete behaviour has already been seen with Usain Bolt declining to take part in the Aviva London Grand Prix in 2010, Rafael Nadal not taking part in the AEGON Championships at the Queen’s Club and the ATP considering moving the end of season World Tour Finals from London once the deal expires in 2013.