Sportspeople competing in the UK face a taxing time

When a foreign professional 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 need to be aware of what they need to report, if applicable, and how they report to HM Revenue and Customs (HMRC). Another important question, which we will look at later in the article, is whether it is worth competing in the UK?

What needs reporting

UK tax legislation states that if a payment made to a sportsperson is more than the UK personal allowance (£12,570 – May 2023), the organisation paying the income will need to deduct 20% tax from the payment and send this to HMRC. This is withholding tax and also applies to any payments made to third parties connected to the appearance.

For example, if they were to receive £50,000 in prize winnings from an event, they would receive £40,000 and 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 tax (£50,270 – May 2023) 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, eg 5 October 2024 for the 2023/24 tax year, and pay any additional tax due to HMRC by 31 January 2025.

A sportsperson entering the UK for just a few 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 criteria which include residing in the UK for 183 days or more. We would always recommend speaking to a qualified tax adviser if unsure of UK reporting requirements.

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 against this income. 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 UK proportion of sponsorship income. 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
• practicing your given sport in public
• undertaking a public event for sponsors

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

UK performance and promotional days divided by worldwide performance and promotional days multiplied by income from endorsement contract.

Relevant Performance and Training Days (RPTD)

A RPTD is any day an individual:

• spends three or more hours in physical activity which contributes towards performance of sport. This must include physical activity and each session should last one hour or more to count towards three-hour requirement;
• practices the sport they are endorsed for or for maintaining general fitness.

A RPTD cannot include:

• travel time
• time spent injured or resting 
• 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.

Example

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

Evidence can include:

• competition agreements
• training diaries
• practice and competition schedules
• daily training logs
• other daily records.

Is it worth competing in the UK?

Using the same example as before, let’s say 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 as a result of competing in the UK. 

A sportsperson may believe they will win the event or earn prize money and therefore the trip to the UK is financially worthwhile. However, they will 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 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 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. Eg for income received during the 6 April 2023 and 5 April 2024 this will be 5 October 2024.

HMRC normally recommends using the RPD or RPTD method for calculating their UK proportion of their 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.

For more information on the issues discussed in this article or to discuss your individual circumstances, get in touch with David Ford or your usual Crowe contact.

This article was first published in Wealth Briefing.