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During 2014 HMRC announced that it plans to overhaul the way in which testimonials for sports professionals are taxed.
It has long been the case that properly organised testimonials are not subject to income tax for the sports professional in question. This is provided that the testimonial is not granted to the sports professional by their employer. In these circumstances, a committee should be formed to organise and manage the testimonial. If correctly organised, it is the committee which deals with the tax compliance.
Clearly, where a sports professional is paying tax at the higher and top rates of income tax, there are advantages to being the beneficiary of a testimonial which is organised in this way.
However, it must be noted that this treatment is derived from HMRC guidance and historical case law which is open to interpretation.
Consequently HMRC have decided to withdraw the guidance and simplify the taxation of testimonials. With effect from 6 April 2016, HMRC plan to treat any income paid to the sports professional as a voluntary payment which arises by way of their employment. This means that in future, this income will be taxed as earnings for the sports professional, at their marginal rate of tax.
The withdrawal of the guidance remains under consultation, with sports lawyers and associations continuing to oppose the proposed changes. However, fans and supporters who are considering forming testimonial committees for the benefit of a sports professional are urged to try and complete this before the end of the current tax year.
Should you have any queries regarding this, please contact our tax department on 0161 727 1291.
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