Overseas athletes hit by UK income tax
Most double tax treaties contain a clause requiring non-resident sportspeople to pay a certain level of income tax, usually at the basic rate, in the territory where events are held.
Non-resident sportspeople who compete in the UK must file a UK tax return showing their income calculations, which typically include direct UK earnings (e.g. prize money, appearance fees and specific UK-related bonuses) and a proportion of their global endorsement income relating to UK appearances.
Following the introduction of the 50% top rate of income tax in April 2010 however, there are serious concerns about the tax on an athlete’s global endorsement income.
Apportionment of income
The apportionment of endorsement income is based on UK performance days divided by global performance days in a tax year. A marathon runner will typically run two races a year, but if one is in London, 50% of the athlete’s global endorsement income will be taxed in the UK, even though the majority of income will relate to training, personal appearances and technical input into product development, which is required under contract. This means that a runner competing in the UK could end up paying more in UK income tax than they would make in direct earnings.
So, for example, if a non-resident marathon runner participates in two races in a year, one of which is in London:
- Direct earnings = £200,000 (prize money, appearance fees, a bonus for runningin London)
- Global endorsement income = £500,000 (the split is based on one of two races in the tax year being run in the UK, which brings half of all global endorsement income into the UK tax net)
- Example 1 shows taxation of direct UK income only (as in most countries). Example 2 includes an apportionment of global endorsement income (as is the case in the UK and US).
|Allocation of global endorsement income
|Amount per UK income tax return
|UK income tax due *
|Effective UK income tax rate **
* For higher earners (in excess of £150,000), the first £35,000 is taxed at 20%, with the next £115,000 taxed at 40%, and anything over £150,000 at 50%.
** Calculated as a percentage of actual UK earnings (global endorsement income would be earned whether or not the athlete competes in the UK).
The UK authorities are under increasing pressure to change the apportionment rules, with top sportsmen like Usain Bolt and Rafael Nadal announcing plans to limit their UK appearances due to the country’s tax rules. If the rules are not changed, more sportspeople may refuse to attend UK events or, worse still, the country could lose the right to host major events altogether.
UK v Rest of the world
Other than the UK, the US is the only jurisdiction that seeks to tax a proportion of a non-resident sportsperson’s global endorsement income. This is less of a problem in the US, where the top rate of income tax is 35%. Moreover, in a recent court case involving golfer Reteif Goosen, it was ruled that part of the endorsement income should be attributed to the player’s image, with the remainder apportioned based on playing days.
A handful of other territories request that non-resident sportspeople file tax returns relating to prize money and appearance fees, while the vast majority simply require tournament promoters to withhold the basic rate of income tax from prize money paid to the players.
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