UK: The Sport Lawyer - Tax And The ICC

Last Updated: 11 August 2011
Article by Emily Osborne

Amongst all the reports this week of ticket availability for the Olympics, HMRC chose to publish their guidance on the availability of the exemption from Income Tax which will be granted to athletes performing at the Games.

As reported in a previous edition of The Sport Lawyer the Agassi decision has meant that HMRC now claim a proportion of non-resident sports stars' endorsement income, based on the number of competitions they participate in globally and in the UK.

As a condition of being granted the Games, the UK agreed to allow an exemption from the usual regime for participants. However, the guidance now published is not as all encompassing as anticipated. Instead, the exemption will only relate to financial or other rewards received by competitors as a result of their performance at the Games or as a result of promoting the London 2012 Games, or the Olympics or Paralympics generally. In addition the payment or reward must be earned between 30 March 2012 and 8 November 2012.

Activities which are not linked to the Games, including endorsing commercial products or appearing on TV or radio other than to promote the Games will not be exempt. It remains to be seen exactly how HMRC will enforce this restriction – although with the increased use of social media by sports stars to report their every move, tracking the exact activities of the athletes whilst they are in the UK will not be quite the task it would have been in the past.

It is clear from the restricted exemption given for the Games that HMRC do not intend to return to their pre-Agassi position any time soon. It is not hard to see why. A recent survey carried out by the Sport & Recreational Alliance which represents tennis, golf and athletics, has calculated that this rule generates £7m of tax for HMRC each year. Unless it can be shown that both athletes and events are staying away because of the charge, it is unlikely that HMRC will give up this revenue stream.

Football creditor rule

May 2011 also saw HMRC in court to continue its ongoing challenge to the football creditor rule operated by both the Premier League and the Football League. Legal action against the Premier League was initiated in May 2010 but HMRC have subsequently delayed that action to await the outcome of another case which they believe will be favourable to them.

After the High Court hearing on 5 May, it now seems that their next shot at this particular goal will begin on 28 November 2011 when the action will return to court.

So what is all the fuss about? The football creditor rule means that certain creditors receive preferential treatment when a club becomes insolvent, and may be paid in full. This is a far cry from the position of HMRC and other unsecured creditors who, as the recent insolvencies of Portsmouth and Plymouth amongst others have shown, receive a very reduced amount.

As you would expect there are arguments for both sides, with those involved in football insisting that the rule ensures that all clubs deal fairly with each other and their players. One thing is certain, neither side will want to be on the losing team. The Sport Lawyer will provide updates on the challenge when it reaches court.

EFRBS

HMRC has recently also moved to remove the tax advantages of Employer Financed Retirement Benefit Schemes (EFRBS) and other practices which it calls disguised remuneration.

The Sport Lawyer has previously explained that EFRBS had become the new accessory in football and as warned at that time, the widespread use of EFRBS in a more aggressive way has resulted in new charges for all such schemes, including those which were set up as genuine pension schemes, with this year's Finance Bill introducing a new employment tax charge which arises when certain steps are taken in connection with an EFRBS.

The Finance Bill has been subject to consultation and there have been some changes made to the charge, so that those EFRBS which were set up and funded before 6 April 2011 will continue to be taxed in much the way they expected, provided no earmarking of any sums for a particular player takes place. However, all future contributions are likely to give rise to an immediate PAYE and NIC obligation.

EFRBS are thus now less tax efficient than originally, although they do still retain the very valid purpose of saving for retirement. With ever increasing salary levels in football, anything which encourages putting money aside for the days when earnings start to drop remains worth considering.

Image rights contracts and companies are expected to experience a return to popularity in the wake of Finance Bill 2011, and you can expect any number of alternative vehicles to spring up shortly. However, whilst the legislation remains in draft form and is likely to change further before it becomes law later this month, it is sensible to view any such schemes with caution.

At present it therefore seems that HMRC is on a winning streak, although it remains to be seen whether this will extend to its challenge of the football creditor rule.

The contents of this article are intended as guidelines for clients and other readers. It is not a substitute for considered advice on specific issues. Consequently, we cannot accept any responsibility for this information or for any errors or omissions.

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