NIM13303 - Class 1A NICs: liability for Class 1A NICs: Class 1A NICs on sporting testimonials: contractual and non-contractual sporting testimonials

In many cases sportspersons have a contractual arrangement with their employer that they will be entitled to have a testimonial arranged on their behalf, whereby they will receive a payment from the income raised. Often this will be a clause in their employment contract which provides that if the sportsperson stays with the team or club for a specific number of years, they will be entitled to a testimonial, although the agreement can also cover other matters such as a sportsperson getting injured and having to end their playing career. All such income is treated as earnings from the sportsperson’s employment with that club and the sportsperson (employee) is liable to income tax and primary Class 1 NICs on that income whilst the employer has to pay secondary Class 1 employer NICs on it.

How much income tax and primary Class 1 NICs the employee has to pay will depend on the National Insurance contributions rates that apply to them at the time they receive the payment.

It therefore follows that a non-contractual testimonial will be one where there is no contractual arrangement between the employer and the sportsperson that the employer will provide the sportsperson with a testimonial.