Sporting Testimonials and Benefits Sporting Testimonials and Benefits - the new Legislation
From 6 April 2017,
new rules apply to the tax treatment of sporting testimonials and
benefits. Because most Testimonial Committees are 'Unincorporated
Associations' they are subject to Corporation Tax on profits rather than
income tax. Depending on teh nature of teh arrangements and income
involved other taxes, including VAT, may need to be considered. The new
rules differ considerably from the general treatment of these
arrangements and represents a marked change.The government has agreed to a ‘one-off’ tax exempt amount of
£100,000 for income from a
non-contractual or non-customary
testimonial event (or year), but only if certain conditions are met.
The new rules cover income from events that take place on or after 6
April 2017, but only where the testimonial has been announced on or
after 25 November 2015, and they do not apply to National Insurance
contributions ( NICs) until 5 April 2020. These changes will apply to:
sportspersons independent testimonial committees Conditions Contractual and customary
In some cases, a sportsperson have a contractual agreement with their
employer for a sporting testimonials; often reflecting that if the sportsperson stays with the team or club for a number or
years, they will be
entitled to a testimonial. However, a
contractual right to a testimonial could also arise if the practice is
customary; if it’s normal practice for a sportsperson to be awarded a
testimonial in certain circumstances. It doesn’t matter whether the
testimonial is organised by
the employer or by a third party as for contractual or customary, all
income is treated as earnings from the sportsperson's employment,
meaning the: employee should pay Income Tax and Class 1 NICs employer or testimonial committee has to pay employer NICs Non-contractual and non-customary
A non-contractual testimonial arises where there is no contractual
arrangement between the employer and the sportsperson. A non-customary
testimonial will arise where the incidence of a testimonial is not
considered to be normal
practice. The above definitions remain as previously determined through
case law and have not been altered by the new legislation.
The ‘one-off’ exemption
A ‘one-off’ exemption of £100,000 is available from 6 April 2017 to
ensure that a sportsperson (who is nearing end of
career or have reached the end) are protected from the change.
A sportsperson will qualify for a ‘one-off’ tax exemption of £100,000 on the income received if:
they’re an employed sportsperson they’re a previously employed sportsperson and the testimonial relates to that employment the testimonial or benefit match is non-contractual or non-customary the events are held during a single testimonial or testimonial year the events are organised or controlled by an independent person (normally a testimonial committee) there has been no previous testimonial income to which the exemption applied
The exemption applies to income received from relevant events held in
a maximum period of 12-calendar months only. This begins with the date
the first event is held in a ‘testimonial year’, even if that year
covers more than one tax year.
Employed sportspersons who have a contractual entitlement or
customary right to a sporting testimonial will be charged Income Tax on all their sporting testimonial
income and the ‘one-off’ exemption will not apply.
An independent testimonial committee should make the
appropriate deductions from the sportsperson’s testimonial income after
allowing £100,000 of Income Tax free, and then operate PAYE if the:
sporting testimonial is non-contractual or non-customary testimonial was announced on or after 25 November 2015 income is from an event or events taking place on or after 6 April 2017 income relates to a testimonial event or a testimonial season lasting no more than 12-calendar months sportsperson is employed or was formerly employed as such
If the amount of income within 12-calendar months has not used up all
of the £100,000 exemption, it can’t be rolled forward to set against
future testimonial income.
When the sporting testimonial falls within the new rules, any income in excess of £100,000 must be reported to HM Revenue and
HMRC). This has to be done online and in real time, either at the time a payment is made or beforehand. A PAYE scheme is needed to do this.
Each Testimonial Commiteee will therefore need to carefully consider:
The operation of PAYE on the amounts paid to the Sportsperson under the new rules. The amount of employers NIC due (from April 2020). The amount of Corporation Tax (exceptionally Income Tax) due on any profits made by the Committee. Whether any activity falls to be subject to VAT. Contact UsWe have a long and proven track record of making
voluntary disclosures to HMRC so if you wish to discuss matters in
confidence and with no obligation please contact us on 01283 761 777 or email us using our Email Enquiry Form.