Bright lights, black socks

‘Black socks, they never get dirty.

The longer you wear ’em, the stiffer they get.

Sometimes, I think of the laundry,

But something inside me says ‘Don’t send them yet.’’

(Children’s song)

A tennis-mad friend (the diagnosis was confirmed when I found out that he read Serena Williams’ tweets) took me to day four of the ATP World Tour Finals at the O2 Arena last week. The matches during our session were Federer v Söderling and a doubles match featuring the pairing of Tweedledum and Tweedledee, otherwise known as the Bryan brothers. Have a look here if you have no idea what I’m talking about.

As thrilling as the tennis was, I noticed something strange: all the players were wearing black socks. Call me a fashion dinosaur, but what could have been going through their minds in the locker room? I know it’s not Wimbledon (too much dry ice and Heavy Metal), but really…  I suppose they do get paid to wear them and, if they play in the UK, they do get taxed (and if they get taxed they need tax advice) so I shouldn’t grumble.

The legislation taxing foreign entertainers and sportsmen started life in Schedule 11 to the Finance Act 1986 before becoming four sections of the Taxes Act 1988 (sections 555 to 558) and has now ended up (as part of the tax simplification process) in three statutes, the Income Tax Act 2007 (sections 965 to 970), the Corporation Taxes Act 2009 (section 1309) and the Income Tax (Trading and Other Income) Act 2005 (sections 13 and 14). Only a curmudgeon would question whether exchanging four sections of one Act for thirteen sections of three Acts naturally qualifies as ‘simplification’. So now you can call me a curmudgeon and a dinosaur.

These rules mean that foreign sportsmen competing in the UK are liable to a 50% tax rate on their appearance fee or winnings as well as on a proportion of their total worldwide earnings. For the many who earn millions from endorsements (or, in new-age parlance, ‘exploitation of image rights’), this could end up being a huge cost.

HMRC base their tax charge on the number of UK events that foreign sportsmen compete in. For example, if a player took part in ten events worldwide, including one in the UK, HMRC would be on the sidelines waiting to tax one tenth of his total worldwide earnings.

The Finance Act 2010 includes a specific exemption from income tax for any foreign football team playing in the 2011 Champions League Final (to be held at Wembley in May 2011). It seems that, without this tax concession, UEFA would not have agreed to hold the final in the UK.

Heading down the same track, the London Olympic Games and Paralympic Games Tax Regulations 2010 implement tax commitments made by the UK in bidding to host the Olympic Games. Under these Regulations the activities of specified individuals who come to the UK temporarily to take part in or assist in the hosting of the Games are exempt from income tax during the period from 30th March to 8th November 2012.

According to the BBC Usain Bolt has announced that he may not compete in the UK again until the 2012 Olympics because of the UK’s tax laws.

Time for the Exemption from Tax (Running 100 Metres in 9.58 Seconds or Less) Regulations 2010?

 

*** UPDATE – January 2012 ***

In October 2011 former World No. 1 tennis player Rafael Nadal announced that he would  not play in the Queen’s Club Championships 2012. The UK tax on non-resident sportsmen is the reason Nadal gave for withdrawing, saying that he could actually lose money by competing in the Wimbledon warm-up event.

Taxing a proportion of an athlete’s global endorsement income, based on the number of appearances here, means that it is possible for foreign competitors to pay more in UK income tax than they actually earn in the UK.

Vamos Rafa!?

Meanwhile in January 2012 it was announced that non-resident athletes who compete at the 2014 Commonwealth Games will be exempt from income tax. The exemption is for competitors only.

The Treasury said that the government generally only grants tax exemptions for sporting events where tax exemptions are a necessary condition of bidding for an event that is at the highest level of world sport.  However, the government is making a ‘special’ exception for the 2014 Commonwealth Games.

‘special’, adj. ‘exceptional in character, quality, or degree’ (OED)

Let’s just wait and see, shall we?

Tax lawyer specialising in business tax, SDLT and VAT