There has been much confusion over who will benefit from the income tax exemption granted for London 2012 competitors. In particular, it has been unclear whether it will apply to endorsement income received by the non-UK resident athletes performing in the Games.
Normally, a non-UK resident athlete is liable to UK tax on any income which is paid in relation to performance in a sporting event in the UK. This includes payments directly related to performance, sponsorship or endorsement income and payments for other activities which are related to performance, such as TV appearances. The amount of sponsorship or endorsement income subject to UK tax is calculated as a ratio of UK performance days to worldwide performance days. Following changes announced in the UK 2012 Budget, the ratio will also include practice days.
The UK tax authority’s Foreign Entertainers Unit has advised that in most cases the ‘acid test’ is whether the activity is “primarily to support or promote the London 2012 Games, or the Olympic or Paralympics movement”, as opposed to being primarily to commercially promote a sponsor’s product.
The application of the exemption to endorsement income will depend on the details of the individual’s contract.
Rules on sponsored sports kit
If a sponsor provides sports kit which can be used in the Games, the exemption will apply. However, if the sponsor provides sports kit that cannot be used in the Games, the exemption will not apply. It will only cover endorsement income earned in the period 30 March 2012 to 8 November 2012.T
he exemption will not apply where the income is not connected with the individual’s performance in the Games or connected to activity primarily to support London 2012, the Olympic or Paralympic movement. For example, an appearance in a store to promote the endorser’s products or appearance in a radio or television show, which is not related to the games, is not exempt.
Any payment or bonus from an existing endorsement contract which is not specifically related to performing in the Games, such as playing at the Wimbledon Tennis Tournament will not be exempt.
If, as a result of their performance at the Games, an athlete is awarded a new endorsement contract, the income arising from the contract will not normally be exempt, even if it arises during the exemption period.
Guidance and definitions, including examples of the apportionment calculations are available at www.hmrc.gov.uk
For more information, contact:
Saffery Champness, UK
Tel: +44 20 7841 4000
This article was first published in Saffery Champness’ June 2012 International Client newsletter. You can subscribe to this newsletter here.