Athletes: Tax treatment of income: 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 (i.e. athletics and all related activity including for example after dinner speaking and promotion work) is organised in a business-like manner and the athlete is seriously interested in profit the athlete is likely to be carrying on a trade (see BIM50605).
Despite being ranked in the world top 10, Helen competes in a sport where it is 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. As the APA is a voluntary grant given for nothing in return, the award is not taxable (see BIM50675).
Lloyd is on a team on the World Class Performance Programme. He receives a £16,000 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 £1,500 and some sporting kit as a gift by a local manufacturer. Lloyd’s sporting activities do not amount to carrying on a trade. Therefore each of the payments Lloyd receives needs to be looked at separately for tax purposes.
As Lloyd is not carrying on a trade, the APA is not taxable (see BIM50675).
The £1,500 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 £1,500 payment was received under an enforceable contract for work done for services rendered, the £1,500 and the value of the sporting kit would be taxable as miscellaneous income under Part 5 Chap 8 Income Tax (Trading and Other Income) Act 2005 (ITTOIA 2005), not as trading income.
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 is a taxable trading receipt.
Mary participates at elite level in a sport which requires heavy expenditure on equipment. She moved from her parents’ 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 parents’ home each day.
She is in receipt of an Athlete Personal Award (APA) of £22,000 and sponsorship income of £7,000. This total funding of £29,000 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 £7,000 would be taxable as miscellaneous income under Part 5 Chap 8 ITTOIA 2005. The APA is not taxable as Mary is not carrying on a trade, see BIM50675.
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 trade.
Mary’s trading income includes:
- sponsorship/endorsement fees,
- appearance fees etc from competitions and events,
- income from associated activities undertaken by her (e.g. TV appearances), and
- the value of goods or equipment supplied to her.
From her trading income she can deduct revenue expenses incurred wholly and exclusively for the purpose of her trade (e.g. training costs, travel expenses to events etc or indeed any expenditure incurred solely for business purposes). See BIM37000 onwards.
She will also be able to claim capital allowances on any qualifying equipment she has purchased for the purpose of her trade (see CA20000 onwards and also CA27000 onwards).
Whether such expenses and capital allowances are allowable in computing profits will depend on the facts of each case. All claims for expenses and capital allowances should be supported by records and documentation.
If an expense has a duality of purpose, part of the expense may be allowed in computing trading 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 trade. 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 trade. 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 trading expense.
For guidance on expenses incurred by athletes which have a duality of purpose, see BIM50620.