£100,000 tax exemption for sporting testimonials

For an employed sportsperson, any income earned via sporting testimonials and benefit matches is ordinarily taxable, as well as being subject to National Insurance contributions (NICs).

However, the HMRC guidance on taxation of income from sporting testimonials has now been updated. A one-off exemption of £100,000 has been introduced by the government department in a bid to protect employed sportspeople on middling incomes from recent changes to tax regulations. This move contrasts the original plans for this policy which saw sportspeople set to receive just £50,000 of tax-free income allowance, as detailed in the 2015 budget.

In a case where a contractual entitlement or customary right to the sporting testimonial or benefit match applies, the one-off exemption will cease to cover this income. However, HMRC have confirmed that the exemption may be applied to a sportsperson’s pay from any applicable events held across a maximum period of a year. Even if the period in question falls across more than one tax year, the window for claiming this tax relief on income begins on the date which the first event is held in a ‘testimonial year’. This move allows sportspeople to make the most of the extension of tax relief from the government and maximise the year-long offering of reduced tax contributions.

Under the updated guidance, it has now become mandatory for independent testimonial committees to implement a PAYE system by which to remunerate athletes in any instance where the total income gained from a non-contractual sporting testimonial or benefit match exceeds the sum of £100,000. Any remuneration exceeding this figure will therefore be subject to taxation under the general regulations set out for workers in the United Kingdom.

Any income from non-compulsory testimonial events held on or after the 6 of April 2017 will be impacted by the updated measure, along with instances of income related to events where the testimonial has been awarded on or after 25 November 2015.

Research conducted by HMRC indicates that around 220 sporting testimonials or benefit matches are held each year in the United Kingdom. However, the number held for professional sportspeople who are not self-employed is significantly lower than this figure. Despite the changes in regulation having minimal impact on high profile sportspeople who receive large sums in compensation for their efforts, such as tennis players and footballers, it is hoped that the updated measures will assist participants in lower paid sports such as cricketers and rugby players in minor leagues across the country.

In instances where a sporting testimonial is a significant sum, HMRC’s changes to the taxation regulations will be a welcomed source of assistance to competitors’ transition to a non-playing career upon retirement from their sport. Consequently, failing to offer players a contractual commitment to put a testimonial of this kind in place will pose great challenges to innumerable clubs who wish to retain talent. The methodology used by HMRC to determine what constitutes a ‘customary’ testimonial also remains unclear.

For further information on this topic, please get in touch with one of our personal tax advisors. Or, you can contact me directly at cburns@geraldedelman.com or on 020 7299 1407.