Mary participates at elite level in a sport which requires heavy expenditure on equipment. She moved from her parent’s home, where she normally lived, to a flat which she rents near the sport’s national training facilities because it is too far to travel from her parent’s home each day. She is in receipt of an Athlete Personal Award of £15,000 and sponsorship income of £5,000. This total funding of £20,000 is however insufficient to meet her training and subsistence expenses which include the costs of the flat. Even though Mary is still only exercising a hobby and not yet trading it is worth noting that if the sponsorship income is received in return for services rendered and this could simply be an endorsement of certain products then the £5000 would be taxable as miscellaneous income.
Mary wins gold at the World Championships and engages an agent to help her exploit her recent success. She is able to secure more sponsorship income and promotional work for a national company.
Mary’s sports activities are no longer a hobby for tax purposes. She is now organised in a business like manner and conducts her sports activities with a view to profit. She is now taxable on all her income as she is carrying on a profession.
Mary can deduct from her taxable income (which includes APA; winnings, appearance money etc from competitions and events; from associated activities undertaken by her eg TV appearances and the value of goods or equipment supplied to her), expenses incurred wholly and exclusively for the purpose of her profession eg training costs, travel expenses to events etc or indeed any expenditure incurred solely for business purposes. She will also be able to claim capital allowances on equipment she has purchased for the purpose of her profession. Business purpose must be the sole purpose; any non business benefit to Mary must be incidental. Whether such expenses are allowable in computing profits will depend on the facts in each case. All expenses claims should be supported by records and documentation.
If an expense is dual purpose part of the expense may be allowed in computing profits. Subsistence costs such as the flat rental, flat overheads and other living costs are unlikely to be wholly and exclusively for the purposes of Mary’s profession. Part of the cost may be deductible if an identifiable part or proportion of the expense is incurred wholly and exclusively for the purpose of Mary’s profession. For example if Mary uses a room in her flat exclusively as a gym and to store her sports equipment she may claim a proportion of the rent and other accommodation costs as a business expense.