THE SPORTS LAWYER is actually a posse of Britain’s brightest lawyers, from the Sport & Media team at UK law firm, Thomas Eggar, who will be contributing features, analysis and insight on a regular basis on the key sports law issues. In TSL’s latest column, Emily Osborne, associate, explains why HMRC is so taxing to foreign sports stars, while Nicole Plant, partner, reveals the latest must-have accessory for the sensible footballer
13 August 2010
Another week and another major sports event is in the news because participants may refuse to come to the UK for tax reasons. This time it’s the upcoming Ryder Cup, to be held at Celtic Manor, with both the event organisers (The European Tour) and players (Tiger Woods and later Paul Casey) voicing their concerns. So why is tax suddenly the hot topic in such diverse sports as golf, tennis and athletics?
It all started with tennis, and a series of decisions relating to foreign tennis players culminating in HMRC’s 2006 victory in the House of Lords in the Agassi case. As a result, HMRC won the right to not only tax international sports stars on their UK prize money, but also on a proportion of their global endorsement income. So far, so fair – if we all have to pay tax on our income earned from activities in the UK, why should the sports stars escape it?
The issue is with the method of calculation. Prior to the tennis cases, the income taxed in the UK was often calculated according to the number of days spent in the UK over a year. However, HMRC successfully argued that the calculation should be based on the proportion of events played in Britain. Therefore if the Ryder Cup is one of 20 events a golfer participates in, he could be taxed in the UK on 5 per cent of his global endorsement income.
The introduction of the 50 per cent income tax rate in April this year has brought the issue into sharp focus, with Usain Bolt refusing to run at Crystal Palace and Sergio Garcia limiting his UK appearances, apparently for tax reasons.
The other problem with the rule is that HMRC can be persuaded to make exceptions to it, such as for the 2011 Champions League final at Wembley and the 2012 Olympics. No-one is denying that attracting such stellar events to the UK is good for the UK, but the question is where do you draw the line?
With UK Athletics, the London Marathon and the All England Club all lobbying for a change in the law and the new Sports Minister Hugh Robertson said to be sympathetic to the issues, this is one tax story that is going to run and run.
Ask any Premiership footballer what last season’s ‘must have’ accessory was and it’s very likely he’ll say it was his EFRBS. With the new season just begun, no let up on tax rates and likely tax changes coming into effect from April 2011, it’s quite likely the trend towards players and clubs establishing EFRBS will continue for a second season.
Now don’t be thinking our charmed-footed heroes have gone soft on a fluffy, high-tech, low-IQ plaything. In some cases they already have their WAGs to fulfil that role. No, this coming season the talk in the dressing room will be about Employer Financed Retirement Benefit Schemes (EFRBS)!
An EFRBS is an unapproved retirement benefit plan. This means that, unlike with approved retirement schemes, there is no cap on the amount that can be transferred into an EFRBS. Also, unlike an approved scheme, an EFRBS has freedom to invest in any asset class, including residential property. What has made EFRBS so attractive recently is a realisation of some of the interesting tax planning opportunities available to the members of unapproved schemes, particularly for those paying the new top rate of income tax at 50 per cent.
These benefits are available to both UK and non-UK domiciled individuals and are particularly useful for the latter, where the £30,000 per annum flat fee on UK resident non domiciled taxpayers applies.
Currently, there is no employment income tax or National Insurance Contributions on the funding of an EFRBS either for the club employer or the player employee. This is likely to change from April 2011, but for those players and anyone else earning in excess of £150,000 per annum, this is a useful way of deferring and, in the case of non-domiciled players, potentially avoiding the new 50 per cent rate of tax otherwise payable. From the clubs’ perspective, they have welcomed the opportunity not to have to pay NIC on sums being transferred to an EFRBS, leaving them financially better off in a difficult economic climate.
It’s important to note, however, that the tax benefits described above will only accrue to those schemes that have been genuinely set up to provide retirement benefits for players. In some cases EFRBS have been used artificially and purely for the purposes of wider income, capital gains and corporate tax planning. It’s for this reason that the tax rules are changing next year and it’s highly likely that many of those schemes will face scrutiny by HMRC.
Thomas Eggar have now advised a large number of clubs and players on the establishment of EFRBS. In all cases this has been done in conjunction with sound financial planning advice and for the genuine purpose of providing retirement benefits to players. We, therefore, look forward to another season of what will hopefully be some glorious football, supported by clubs and players continuing to take prudent advice on protecting their futures; a refreshing new trend in footballing fashions!