BIM50606 - Athletes: Taxation case studies
The purpose of the following examples is to show that the description ”amateur” and the amount of time spent on athletics and associated activity are not decisive in determining whether any payment received or derived from activity as an athlete is liable to tax. The vast majority of athletes are engaged in hobby. Where the activity (as athlete and all related activity including for example after dinner speaking; promotion work) is organised in a business-like manner and the athlete is seriously interested in profit the athlete is likely to carry on a profession.
Athlete Taxation Case Studies - Example 1
Despite being ranked in the world top 10, Helen is in a sport where it’s generally very difficult for even top athletes to attract sporting income. The physiological demands of her event mean she can’t work while training at the level required to be world class. Her only source of income is therefore currently her Athlete Personal Award (APA).
The award alone does not bring into existence a profession. Helen’s sporting activities do not amount to carrying out a professional activity through her sport. Because the APA is a voluntary grnant given for nothing in return, the award is not taxable.
Athlete Taxation Case Studies - Example 2
Lloyd is on a team on the World Class programme. He received a £7000 Athlete Personal Award (APA). Although he competes at world level he still holds down a part time job as an administrative assistant. In his sport it is generally very difficult for athletes to attract sporting income. He has been given £1500 and some sporting kit as a gift by a local manufacturer.
Lloyd’s sporting activities do not amount to carrying on a profession. Lloyd’s APA will therefore not be taxable.
The £1500 and the value of the sporting kit are not taxable as these were not received under an enforceable contract and Lloyd did nothing in return.
If however the facts and documentation indicate that the £1500 was received under an enforceable contract for work done for services rendered, the £1500 and the value of the sporting kit would be taxable as miscellaneous income, not as profit from a profession under Case II as Lloyd does not carry on a profession.
Any loss of earnings support paid to Lloyd by his sport’s governing body is not taxable as Lloyd is in employment. Loss of earnings support paid to an athlete who carries on a trade, profession or vocation is a taxable receipt of the trade, profession or vocation.
Athlete Taxation Case Studies - Example 3
Mary participates at elite level in a sport which requires heavy expenditure on equipment. She moved from her parnent’s home, where she normally lived, to a flat which she rents near the sport’s national training facilities because it is too far to travel from her parent’s home each day. She is in receipt of an Athlete Personal Award of £15,000 and sponsorship income of £5,000. This total funding of £20,000 is however insufficient to meet her training and subsistence expenses which include the costs of the flat. Even though Mary is still only exercising a hobby and not yet trading it is worth noting that if the sponsorship income is received in return for services rendered, and this could simply be an endorsement of certain products, then the £5,000 would be taxable as miscellaneous income.
Mary wins gold at the World Championships and engages an agent to help her exploit her recent success. She is able to secure more sponsorship income and promotional work for a national company.
Mary’s sports activities are no longer a hobby for tax purposes. She is now organised in a business like manner and conducts her sports activities with a view to profit. She is now taxable as she is carrying on a profession.
Mary can deduct from her taxable income (which includes APA; winnings, appearance money etc from competitions and events; from associated activities undertaken by her eg TV appearances and the value of goods or equipment supplied to her), expenses incurred wholly and exclusively for the purpose of her profession eg training costs, travel expenses to events etc or indeed any expenditure incurred solely for business purposes. She will also be able to claim capital allowances on equipment she has purchased for the purpose of her profession. Business purpose must be the sole purpose; any non business benefit to Mary must be incidental. Whether such expenses are allowable in computing profits will depend on the facts of each case. All expenses claims should be supported by records and documentation.
If an expense is dual purpose, part of the expense may be allowed in computing profits. Subsistence costs such as the flat rental, flat overheads and other living costs are unlikely to be wholly and exclusively for the purposes of Mary’s profession. Part of the cost may be deductible if an identifiable part or proportion of the expense is incurred wholly and exclusively for the purpose of Mary’s profession. For example if Mary uses a room in her flat exclusively as a gym and to store her sports equipment she may claim a proportion of the rent and other accommodation costs as a business expense.
