Taxation of athletes
Complex tax circumstances may result from taxes on athletes in the UK or who are UK residents but compete abroad. Whether or not someone is regarded as a tax resident determines whether or not tax is owed on income received in a country.
Residence for tax purposes and athletes
The Statutory Residence Test is used to determine where a person is tax resident in the UK (the SRT). This three-stage test is evaluated annually to determine a person’s UK tax residence status and the appropriate UK tax treatment as a result. The usual norm for athletes is that they must pay taxes in the nation in which they compete.
However, that does not imply that they must pay taxes only there.
It is crucial to first establish the fundamentals of the SRT, which entails a three-stage process that examines automatic residency/non-residency and, if that is inconclusive, adequate ties.
The UK tax position can be ascertained when it has been decided if the athlete is a resident or non-resident under the SRT.
Coming from abroad to work in the UK
A sportsperson may travel to the UK to work during a specific athletic season, but because they do not match the requirements, none of the automatic tests are carried out.
However, a player who has been active for one or two seasons (at a single club or a number of clubs in the UK) may be considered a UK resident under the SRT.
This has the effect of subjecting the athlete to UK income tax on their worldwide earnings, which may include earnings from other clubs or other sources (e.g. investments or property income). Some sportspeople who are not British citizens can use the remittance basis to only pay taxes on the money they bring into the country.
In other cases, athletes may keep their tax residence status in their native country since they will visit the UK for a while before returning home. They would need to take into account the tax treaties between the UK and their native country to ascertain where they are eventually taxed because this could complicate the tax situation. On a UK tax return, they would also need to submit the pertinent claims and disclosures to HMRC.
British citizens working abroad.
The same holds true for athletes who reside in the UK but travel to play abroad. Most tax treaties include particular provisions for athletes, allowing the nation in which they are competing or participating to tax their income.
So, for instance, if a British athlete travelled to play abroad, they may be subject to tax in both nations and would then need to file for double tax relief to avoid paying two different taxes on the same income. It’s a popular fallacy that if someone pays taxes abroad, they have no further UK tax obligations. This is frequently untrue and can result in unpaid UK taxes, interest, and possible fines, as well as possible HM Revenue and Customs inquiries.
To make sure they understand their tax situation and that they have complied with all of their compliance requirements, anyone in this type of circumstance should seek professional assistance. Furthermore, as a result of Covid, you might unintentionally have gained a tax residency in a nation if you were stranded in the UK or abroad for a longer period of time than expected. We can assist you if you need advice on this.
When negotiating a contract, sportspeople who are fortunate enough to have an image that their club or third-party endorsers want to use can put procedures in place to ensure that the tax position is maximised while taking into account their own personal situation.
Therefore, it’s crucial to seek professional guidance right away.
Contact our professional Accountants team if any of the aforementioned situations apply to you and you need help or any additional details.