In most cases, a player’s tax position is relatively simple; they are employed by the team and their earnings are taxed at source so what they receive is theirs to spend and invest as they see fit.
There are a few areas, however, where things are not quite so straight forward and it is always worth making sure that there is a trusted adviser at hand.
1. Agent’s fees
When a player is signed by a club, there is usually an agent involved and, in the UK at least, the agent is often said to be acting on behalf of both the club and the player. This dual role results in the agent’s fees being split between the player and the club, but often with the club paying the full amount. The player therefore effectively receives more in ‘salary’, because he hasn’t had to directly suffer his share of the agent’s fees, so this is a ‘benefit in kind’ taxed under the player’s personal UK Tax Return.
There are a variety of ways to anticipate and deal with this potentially unexpected tax cost, so it is important to be aware of it and plan for it.
2. Image rights
This is always a complex topic and it is important that players don’t simply accept a pre-packaged ‘image rights’ deal without critical review.
Generally, wages for sporting performance are separate from payments by the club that allow them to use the player’s image in marketing and other business development activities.
Image rights agreements have become popular because both the club and the player benefit financially: it keeps the player’s effective rate of income tax down while reducing the costs for the employer. However, the agreement must have substance and be supported by clear evidence to explain their design and valuation because the difference in how wages and image rights are taxed can lead to distortions, and the UK’s tax authorities have a variety of tools to redress the balance where the arrangements are not necessarily at arms’ length.
Therefore, to maximise the potential benefits to both the player and the employer club, it is important to have an adviser who can be objective in assessing the availability of using image rights and their potential valuation. This will help with any tax enquiries.
3. Foreign players
There is usually an option for the foreign player to benefit from the ‘remittance basis’ of taxation in the UK, meaning that non-UK sources of income and capital gains may not ever be taxed here. This is a vital part of planning for the investment of disposable earnings and historic savings, but it can also play a significant part where image rights are concerned.
This is a very complex area of the UK’s tax code and reserved more for those with a very recognisable and valuable public profile, so while it won’t be applicable to all players and athletes, it is critical to understand whether it may be relevant and, if so, to what extent.
It is important to make sure that everyone is paying the right amount of tax while being well within the rules and making sure you have the right adviser is important.
For more information on personal taxes within the sport sector, please contact James Walker, Partner at firstname.lastname@example.org
Author: James Walker, Partner at haysmacintyre