Intro to Athlete Tax

Athletes are an exceptional bunch of people and they lead different lives to most people in the tax system. They are therefore treated quite specifically.

The tax rules for athletes are fair, but complex. For an athlete on a basic Lottery Award (APA), there is generally no tax implications. Athletes with some other income fall into a complex middle ground, and athletes who are profiting from their sport (making a living from what they do) are generally fully taxable, including their APA.

Athletes and their advisers need to decide where the athlete crosses the taxable line so that income funding becomes taxable either:

Because he or she is a professional for tax purposes or It is taxable as miscellaneous income.

The answers to these questions will depend on the facts and circumstances of each case and HMRC Business Income Manual BIM 50606 provides 3 case studies which will help athletes decide if and when they become a professional for tax purposes.

In the case of miscellaneous income one of the questions to ask is whether services are supplied in exchange for the payment(s) and if so are they sufficient to make them taxable.

The following are practical examples of where payments are received with their possible treatment for tax purposes:-

1. The athlete is photographed receiving a cheque from a donor but does nothing else for the donor who uses it for publicity purposes. This will probably be treated as a gift since he does nothing in return.
2. The athlete agrees to have his or her image and association with the donor published on the latter’s website; there are also personal appearances. All of this is confirmed in a letter of agreement. The fees are probably taxable as miscellaneous income but the athlete may instead be taxed as a professional depending on all of the facts.
3. An Olympic medal winning athlete receives a fee for opening a local store of £500 and £1,000 for giving a presentation on motivation to an employer’s conference for its management team. She engages in no other professional activities. If these fees were earned under an enforceable contract for her services they will be taxed (less any related expenses) as miscellaneous not professional income.
4. An athlete receives reimbursement of expenses plus a fee of £500 from his NGB for each of 3 appearances he agrees to make for his NGB’s sponsor. He receives no other income from his sport other than his Athlete Personal Award. His appearance fees are taxable as miscellaneous income.
5. An athlete enters into a written agreement directly with his NGB’s sponsor under which in return for 4 days of appearances per year he receives £5,000 plus expenses. Otherwise he does not actively promote himself, is not regarded as a professional but is taxable on the £5,000 as miscellaneous income.
6. An athlete is in receipt of an APA but nothing else. Under his NGB agreement he receives a bonus for winning Olympic Gold. This bonus is potentially taxable either as miscellaneous income or professional income (less likely). All of the facts and circumstances should be considered to determine the tax status of the bonus.
7. In certain sports the equipment is costly and is often purchased by a company for use by the team. The company often funds the cost through sponsorship of the equipment. Other commercial contracts are sometimes entered into by the company which contracts in its own right and is independent of the team members who use the equipment. The company should be taxed on its income in its own right less its costs and tax allowances on the equipment. HMRC are unlikely to want to try and attribute company income to the team members concerned.Notwithstanding these examples, judgment will need to be applied in each case and there are many grey areas.

In the case of 2) and 6) where the athlete is taxed as a professional the Athlete Personal Award will also be taxable. Where the athlete receives a combination of payments under 1) to 6) professional advice should be taken as to the athletes tax status.

Having established the taxable nature of the athletes income, the deductibility of expenditure should be considered.

Athletes should carefully consider their responsibility to file self-assessment income tax returns even where their only source of income is the APA or they have a small amount of miscellaneous sporting income. This is a matter of judgment for individual athletes and their advisors but it may be wise to file a return even where no tax is due to make HMRC aware that they were in receipt of sporting income. Athletes may need to ask HMRC to supply a tax return form.

Where athletes have overlooked their tax obligations in the past but get their tax returns up to date they are likely to be more sympathetically treated by HMRC than if the latter discover the athlete’s tax affairs are in arrears and launch an enquiry.

If you have any concerns relating to your past or present tax position, please call our recommended Athlete Tax advisors, GMS FC on 01473 229800.