Whoever at the HMRC Press Office thought it wise to troll a 16 year-old about his financial affairs may want to think again how they keep the wider public informed about tax law.
But while the methods may be dubious, the facts about the leap in income that Luke Littler is currently enjoying, and the downsides to it, were at least correct.
Littler’s remarkable journey to the World Darts Championship final will have earned him around £200,000 in prize winnings – with more likely to come to him via sponsorship and other deals – including, perhaps, becoming the face of frozen doner kebab meat. It’s all glamour.
While the earnings value ‘a lifetime of doner kebab meat’ may be an exceptional case for the authorities to rule on, the issue of tax affairs for a sports persons’ winnings is often a little tricky to unravel.
There has been some confusion, for example, generated by the term ‘winnings’ – lottery and betting winnings are usually exempt from tax for instance. But, in general, if a sports person’s winnings are considered a normal part of that individual’s income, then it is taxable.
That’s true of darts players, golfers, snooker players and the like – those who make their living from competing in tournaments and the appearance and prize money that they earn.
In Littler’s explosive breakthrough, therefore, his £200,000 prize will have instantly put him into a higher tax bracket and paying the 45% tax rate.
But while Littler has found himself at a high level of professional sport, there are many who play darts as a hobby, and occasionally win. The tax man may not view that as core but may catch it in the ‘miscellaneous income’ bracket. That is unlikely to apply if you won a crate of lager for a tournament win in the local, but would if you signed a contract to play in a tournament or match and are therefore selling services. The same applies to all sorts of semi-professional sport. In those cases, though, you may not be liable to pay national income contributions.
Things get even more complicated for overseas sports people competing in tournaments in the UK. Anybody who pays a performer for an appearance in the UK has an obligation to withhold basic rate (20%) income tax if the total annual payment exceeds the personal allowance ( £12,570). This also applies to payments made to image rights or similar, as HMRC catch up on those work-arounds. As any winnings exceed other income thresholds, so the tax rate would rise – though there are some deductible expenses that can be claimed (travel, accommodation, coaching).
Most countries only tax the income directly related to the local performance, such as prize money and appearance fees. The UK, however, is one of a minority of countries who also seek to apportion part of an athlete’s global endorsement income to their UK performances, and collect UK tax on the UK-related proportion of this income. That doesn’t exactly encourage overseas sports people to compete in UK tournaments, but that’s a different debate….
There’s some sports where that hits hard – in golf, for example, a player will typically not receive any prize money if they don’t make the cut but they can still be taxed on a proportion of their worldwide endorsement income just for playing the first two days of a competition. We don’t make the rules…
The best advice, particularly for sports people who are starting out on their careers, is to talk to those who know the landscape. It’s tricky and, without good advice, you can fall foul of some pretty tricky regulation.
Get in touch and we can talk things through.