UK tax liability for offshore sports stars and entertainers

TaxTalk - August 2023

read timeRead time: 18 mins

Brian Harman has won The Open, Carlos Alcaraz and Markéta Vondroušová have won their Wimbledon titles, and The Ashes have been retained by Australia. The UK Summer of sport is coming to a close, but with all of the performance fees and prize money, athletes need to avoid being caught out by HMRC and aware it’s not just their winnings that are taxable in the UK. 

As with all individuals, the UK tax system for sports individuals and entertainers begins with their tax residency position. This is determined by the UK’s Statutory Residence Test (SRT). More detail can be found here.

If UK resident, by default they will be subject to UK taxes on their worldwide income and gains. Depending on their domicile position, they may be able to make a claim to be taxed on the remittance basis, and make an additional claim for Overseas Workday Relief (OWR) to reduce their exposure to UK taxes. More detail can be found here.

Non-UK resident individuals in the sport and entertainment world that travel to the UK for tournaments or events and are present in the UK for only a short period, can have further complications to their tax positions.

UK-specific earnings

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’ such as, a tournament or a concert in the UK. For example, the £2.35 million Alcaraz and Vondroušová each won, will be liable to UK taxes regardless of their tax residency position. Similarly, when KISS came to The O2 earlier in July for their retirement tour, the income from this will be liable to UK taxes.

For these athletes and musicians, even though their winnings or tour fees are liable to UK tax, the income may also need to be reported and taxed in their country of residence. It is key to check the relevant Double Tax Agreement (DTA) and ensure the available tax credits are claimed. 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 due to each individual and, should they exceed the personal allowance (£12,570 for 2023/24), withhold basic rate tax at 20% from the payment. On this basis, Wimbledon will have paid HMRC over nearly £1 million in respect of the winner’s prize money alone.

Global income

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.

For example, some sporting stars receive sponsorship from a brand, or brands, and as part of the sponsorship deal, must wear the brand throughout training and tournaments. So, the recent British Open winner, Brian Harman, will need to apportion his endorsement income from brands, like Titleist, for the time he was in the UK relating to this. In some circumstances, it will be important to check the endorsement contract to confirm what exactly could be liable to UK taxes.

For UK tax purposes, the proportion of their time in the UK wearing those brands or using the products 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.

Looking at 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.

The RPTD method is essential for those sports where the actual time ‘performing’ might be limited over a tax year like Boxing, or Formula 1 racing drivers. Whereas ‘training’ can include any physical activity which contributes towards the performance of their sport and may include maintaining general fitness.

Where an individual’s worldwide endorsement income is brought into UK tax, appropriately 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 (or reclaimed).

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, and similar one-off “blue chip” events will require similar exemptions if they are awarded to the UK.

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.

If you would like advice on any of the issues raised in this article, please contact Phil Clayton.