Tough tax rules can hit sportsmen where it hurts.
When the nation sat, spellbound, as the plucky young Brit faced his seemingly impenetrable opponent in the Australian Open final this weekend, few people would have been pondering the tax consequences. As the unfortunate Scot returns home, however, perhaps he would benefit from a quick look at the tax law as it relates to sportsmen and women.
First Service
The most high-profile case of recent years involved the American tennis star Andre Agassi.
Agassi had appeared at Wimbledon in the tax year in question, although he had not won the tournament, and completed his tax return on the basis that no tax was due.
He was not disputing the fact that his earnings from sport earned in the UK, such as his appearance at Wimbledon, were liable to UK tax. However, when taking into account all his expenses of appearing here, coupled with the lack of prize money, he calculated that he had actually made a loss.
HMRC disagreed. They argued that the income from his sponsorship and endorsement deals ought to be included when calculating his UK liability. Their argument was that his UK appearance was an intergral part of these valuable deals. After all, companies aren't going to pay someone loads of cash to sit at home wearing a branded T-shirt.
Deuce?
The case did go through the courts, but in the end HMRC won. It was widely expected that they would not, given the potentially huge impact the ruling could have on other sportsmen appearing in the UK, but instead, HMRC hit an ace.
Or did they? As featured in The Sunday Times a couple of weeks ago, the current method of assessing sportsmen (who are not liable to UK tax under any other rules) is that a proportion of their overall earnings is taken. However, this calculation is not made on a daily basis, as you might expect. For example, if Federer was at Wimbledon for two weeks, he would not be assessed on 14/365 days. No, instead the proportion is the number of UK appearances as a part of the whole.
This can be very prohibitive especially where sportsmen only appear a limited number of times a year. People like golfers, boxers and athletes are all liable for a potentially huge UK tax bill for a few days work in the UK.
Love All
This regime is clearly lucrative for HMRC but what about the potential impact on sport? It has been reported that sportsmen are eschewing UK tournaments, other than the very biggest, in favour of those in other countries.
Footballers make a large number of appearances, so are likely to be less concerned. Thanks heavens for that, given the meagre wages the average Premiership footballer has to scrape by on. And they can still encapsulate their image rights within a corporate structure, allowing them to obtain tax advantage (even more so if they are a foreign national and it is an offshore company). They do have to be pretty famous for this to apply however, such that their image can be divorced from their professional appearances while playing.
Penalty?
Footballers aside, many people would be disappointed if Britain becomes devoid of sportsmen, not least the 2012 Olympics committee.
Fear not though. The 2006 Budget included a statement that "non-UK resident competitors will not be charged to tax on income arising from their performance at the Games, and that non-UK residents who are only temporarily in the UK for the purpose of the Games will not be charged to income tax on their earnings from the work they perform in relation to the Games."
The detail of these proposed new rules has not yet been drawn up, but it seems likely they will be sympathetic to athletes training and competing in the Olympics.
Still, if all foreign contenders were taxed out of the Games, perhaps we would have more chance of winning some medals…
More from Sam Thewlis:
