UK Tax Guide For Sportspersons / Entertainers:
An Executive Summary
This is an introductory guide for Sportspeople and Entertainers,
linking in to our full UK Fact-File. If you'd rather dive
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Business Formation: Many sportsmen and entertainers
operate very successfully as individuals, but they need to
register as self-employed with the
Inland Revenue. You don't need anyone's permission to
be a stand-up comic or to play golf, although professional
organizations and the club system may constrain your choices
in some cases. You won't have to register or license your
business unless you form
a limited company, or you are the Rolling Stones and you
need to take over Hyde Park for your gig, which will certainly
require a
special license. Limited companies do have to be registered
of course, and have to report
annually. And remembering that the only two certainties
in life are death and taxes, inevitably you'll have to make
annual tax
returns, whether you're a limited company or not. If you're
really in a small way of business, you won't have to bother
with VAT,
which in any case doesn't apply to some types of sporting
and entertainment activity. Of course if you take on staff,
life becomes more complicated!
Domestic Taxation: The big issue is whether
to be taxed as an individual
or as a company.
With individual taxes going up to 50%, the corporation tax
rate of 30% looks attractive. Needless to say, it's more complicated
than that, especially if you are a director of your company.
The special circumstances of a sportsman or entertainer may
also have a bearing on the choice to be made; long-term streams
foreign income, if you are successful, may dictate the use
of a company. Husbands
and wives can play some interesting variations, and get
the best of both worlds. Longer term, the holy grail is to
turn income into capital, something which sportsmen and antertainers
can achieve through sales of rights; but it isn't easy - HMRC
has closed off most of the obvious routes. If you're a 'non-dom',
ie not born and bred in the UK, another goal is to remain
non-resident, which means not having a permanent
establishment (fixed place of business) so that you get
taxed only on UK-source
income. If there's one aspect of your business on which
you should consider taking paid-for advice, it's probably
the tax structure. It's so important to get it right at the
beginning!
International Taxation: Few sportspersons
or entertainers have a static location, although a marketing
company may be based in one particular spot. In fact it's
one of the advantages of this rather special way of life that
you're not tied to one place, and you have the opportunity
to base yourself in a low-tax location. Getting performance
or royalty
income without tax may be straightforward inside the EU
if you have a corporate set-up, although some countries discriminate
against low-tax locations, but it can be more complicated
if the foreign country takes a bite out of your income, called
withholding
tax. Then you have to turn to double tax treaties to try
to get the money back. It's all a bit of a jungle. If you
set up a marketing operation in a foreign country, you need
to try to avoid the 'permanent
establishment' trap, and you may get bogged down in local
VAT.
If you go to work in a foreign country for a longer period
of time, you need to think hard about your tax situation in
advance, both in respect of local income taxation and perhaps
because of withholding
tax.
Tax-Efficient Structures: Faced with relatively
high individual and corporate tax rates, many British sportspersons
and entertainers devote considerable attention to forming
tax-efficient structures. If you remain tax-resident in the
UK, the use of offshore trusts is no longer effective, although
they can still be useful for asset protection. Ownership of
companies in low-tax jurisdictions has also become pointless
due to ever-more stringent CFC
(Controlled Foreign Corporation) rules. What remains is
actual emigration, to one of a variety of 'low-tax' or 'offshore'
locations. Cyprus, Malta, Ireland, Jersey, Guernsey, the Isle
of Man, Monaco and Andorra all have their pros and cons. But
as recent cases have made clear, becoming non-resident requires
a very clear break with UK ties. Non-resident artistic sportspersons
and entertainers meaning to operate in the UK can also use
offshore structures, as long as they avoid the 'permanent
establishment' trap; and their earnings may well be subject
to UK withholding
tax, currently at 22%.
Business Incentives: There is a wide variety,
almost a bewildering variety of support
schemes operated by various levels of government, some
of them in association with the European Union, offering direct
grants to support employment, rebates on taxes, tax credits
for investors in small businesses, and R&D
tax credits. Grants are available from several sources, including
the UK government, the European Union, Regional Development
Agencies, Business Link and local authorities. Many grants
are limited to small and medium-sized companies. Not many
of these schemes will be relevant to sportspersons and entertainers,
but it is well worth investigating what's on offer. However,
the saying: 'He who sups with the devil needs a long spoon'
comes to mind. The schemes are well-intentioned, no doubt,
but they can be intensely bureaucratic, with very intrusive
qualification procedures, and a long 'tail' of reporting requirements.
Employing People: Many experienced employers
will just tell you: 'Don't do it'. 'Marry in haste; repent
at leisure', they say, and it was never so true than when
it comes to employment. Don't kid yourself that employees
will feel that they owe you anything. Today's workers, encouraged
by a slew of anti-business legislation from Brussels, and
the general nannying attitude of government, often feel that
the world owes them a living. Many employers of course bring
problems on themselves by treating employees as little better
than slaves. Most sportspersons and entertainers run quite
skinny operations (pace Team Murray), but if you do need staff
try as hard as you can to use contractors (ie self-employed
people) rather than employees. The
Inland Revenue has plenty to say about that, of course,
so if you are left with no choice, realize that you will have
to operate 'PAYE',
provide various statutory social benefits, and that it is
extremely hard to dismiss
an unsatisfactory employee once you have taken them on. Of
course, there are plenty of exceptions to these rather sweeping
generalizations. Lucky you if you find some!
Welfare And Lifestyle: Meaning, for the
sportsperson or entertainer herself. Obviously, state social
welfare schemes apply to sportspeople and entertainers as
much as to anyone else, although there may be problems if
you operate across national borders. Many people will want
to have improved (meaning private) health
benefits, and almost all will want to find tax-efficient
ways of making provision for their pensions. It's important
to separate these from your business itself, in case of failure.
If you have it in mind to retire to somewhere warmer and less
highly taxed, then the time to start is now, in terms of building
up a pension away from the grasp of the
Inland Revenue.
International Aspects: Perhaps
you plan to live out your life as a respected and contented
member of your local community. The salt of the earth, one
might say, if that's not patronising. But some people, and
perhaps especially sportspersons and entertainers, will find
themselves drawn inevitably into an international existence,
working and/or living in other countries. There are many challenges:
apart from the difficulty of arranging your tax affairs satisfactorily,
there are the problems that go along with property
ownership, education
of your children, international removals, health
care and pension
provision, just to take some of the more obvious issues. Of
course no one can predict the future with any certainty, but
there are all too many stories of people who have trapped
themselves in the wrong investment in the wrong currency in
the wrong place, with multiple taxmen on their backs. Most
such problems are avoidable, with forethought.
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