Taxing time for sporting testimonials

HM Revenue & Customs (HMRC) stated in an update to their business manual in May that the various activities undertaken by the organisers of testimonials may be regarded, for tax purposes, as trading.

When a testimonial consisted of a one-off event then HMRC was fairly sanguine about the tax implications but now many testimonials consist of a series of events organised to raise substantial sums of money through a mixture of sales, a match, merchandise and other commercial activities.

Many testimonials are organised by an independent voluntary committee to ensure there should be no tax liability for any fund raising events. If the club itself organises such events then the club is liable for tax and the player’s payment is taxed as earnings.

Brian Lovie, director of employment taxes with BDO, explains: “The key point for HMRC is whether the testimonial activity is regarded as trading. If a special event is organised where tickets are sold, or food, drink or souvenirs are sold in support of the testimonial then this is regarded as trading as the supporters are getting something for their money.”

“If, however, a sponsored walk is held or a bucket is passed around at a match, then there is no tax liability as the donor has not received any goods or services for their money. Organisers of testimonials need to be aware that there is a fine line between doing something which is regarded as trading and something which is simply donating.”

Mr Lovie added: “It should be noted that if the organising committee is unincorporated then it will be liable for corporation tax on any chargeable income it receives such as bank interest or trading receipts.”

“Where a testimonial, in the opinion of HMRC, has given rise to trade receipts then profits will be determined along normal accounting procedures including corporation tax at 20%. Players who have their right to a testimonials written into their contracts will also now be liable to tax and NI so there is clear evidence that HMRC has hardened their attitude considerably.

“Testimonials are usually undertaken with the best intentions but it is important to understand that the goalposts have been shifted and HMRC is now looking at these events as another potential source of income. Setting up any testimonial committee and activities should, therefore, be undertaken with caution as committee members are personally liable for any tax incurred in the process.”