Income from sporting testimonials

Football_supporter Print news article

27/01/2016

Testimonials or benefit matches are arranged for the purpose of paying tribute to a sportsperson, usually coming to the end of their career, honouring them for their service to a club.

Currently, the tax treatments of payments from sporting testimonials is governed by HMRC guidance which, broadly, provides that, where the right to a testimonial match forms part of the sportsperson’s contract of employment or is a customary right, the payment will be subject to income tax and National Insurance Contributions (NICs). However, where there is no such contractual entitlement or customary right, the payments are not treated as earnings but as gifts, made in recognition of the contribution of the sportsperson. This approach accords with leading judicial authority which has been to treat the proceeds of a testimonial as a gift [1].

The Government announced a consultation in the 2015 Summer Budget proposing changes to the legislation to make income from testimonials taxable as employment income. Following that consultation, the Government has confirmed that the legislation is to be changed, so that all income from sporting testimonials and benefit matches for an employed sportsperson will be chargeable to tax, and liable to employee and employer NICs.

There will be an exemption of £50,000 of the income received during the testimonial year, effectively a lifetime exemption, although this exemption will not apply where there is a contractual entitlement or customary right to the testimonial or benefit match.

The new legislation, which will be contained in the Finance Act 2016, will only apply where (1) the event takes place after 5 April 2017; and (2) the testimonial is granted or awarded on or after 25 November 2015. The Government intends to introduce separate legislation regulating the National Insurance treatment, which will follow the income tax treatment. There is therefore a short window in which sporting testimonials/benefit matches can be arranged where the income generated will not be subject to income tax.

Independent testimonial committees are often responsible for arranging testimonials/benefit matches, in part to ensure that the employer is removed from the arrangement, thereby diminishing the possibility of the income being treated as employment income and therefore subject to taxation. However, once the changes come into effect, the tax treatment described above will apply irrespective of whether the testimonial/benefit match is arranged by the sportsperson’s club or, as is commonly the case, an independent testimonial committee. In addition, independent testimonial committees may need to operate PAYE, and deduct employee and employer NICs on income derived from the testimonials/matches they have arranged.

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[1] Reed v Seymour 11 TC 625

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