Sporting testimonials: Income Tax and National Insurance payments
Find out how much Income Tax and National Insurance contributions to pay on sporting testimonial income.
Sporting testimonial tax changes
From 6 April 2017, new rules apply to the treatment of sporting testimonial income.
Income Tax is due on income from all sporting testimonial and benefit match events. Corporation Tax and VAT may also be due depending on the nature of the income or how payments are made.
The government has agreed to a ‘one-off’ tax exempt amount of £100,000 for income from a non-contractual or non-customary sporting testimonial event (or year), if certain conditions are met.
The new rules cover income from events that take place on or after 6 April 2017, but only where the testimonial has been announced on or after 25 November 2015.
The new rules do not apply to National Insurance contributions. Matching changes for National Insurance contributions will apply from 6 April 2020.
This means existing arrangements for the payment of National Insurance contributions will apply until 5 April 2020.
Sporting testimonial National Insurance changes
From 6 April 2020, new rules apply to the treatment of sporting testimonial income.
Class 1A National Insurance is due on income from all sporting testimonial and benefit match events. This is a charge on the Sporting Testimonial Committee – not the sports person.
The government has agreed to a ‘one-off’ tax exempt amount of £100,000 for income from non-contractual and non-customary sporting testimonial events (or year), if certain conditions are met.
The new rules cover income from events that take place on or after 6 April 2017, but only where the testimonial has been announced on or after 25 November 2015.
This means existing arrangements for the payment of National Insurance contributions will apply until 5 April 2020.
Who the changes affect
These changes will apply to:
- sportspersons
- independent testimonial committees
Conditions
Contractual and customary
In many cases, sportspersons have a contractual agreement with their employer for sporting testimonials. Often the agreement will be if the sportsperson stays with the team or club for a specific number of years, they will be entitled to a testimonial, however, it can also cover other matters.
If it’s normal practice for a sportsperson to be awarded a testimonial in certain circumstances, this is what we refer to as ‘customary’. It does not matter whether the testimonial is organised by the employer or by a third party.
For contractual and customary, all such income is treated as earnings from the employment, meaning the:
- employee should pay Income Tax and Class 1 National Insurance contributions
- employer or testimonial committee has to pay employer National Insurance contributions
Read about employee and employer Income Tax rates and National Insurance contribution rates.
Non-contractual and non-customary
A non-contractual testimonial will be where there is not a contractual arrangement between the employer and the sportsperson.
A non-customary testimonial will be where there is not a contractual arrangement or a testimonial award which is considered to be normal practice.
These definitions remain the same as previously determined through case law and have not been altered by the new legislation.
How the ‘one-off’ exemption works
A ‘one-off’ exemption of £100,000 is available from 6 April 2017 to make sure that sportspersons on modest incomes (who are nearing end of career or have reached the end) are protected from the change.
A sportsperson will qualify for a ‘one-off’ tax exemption of £100,000 on the income received if:
- they’re an employed sportsperson
- they’re a previously employed sportsperson and the testimonial relates to that employment
- the testimonial or benefit match is non-contractual or non-customary
- the events are held during a single testimonial or testimonial year
- the events are organised or controlled by an independent person (normally a testimonial committee)
- there has been no previous testimonial income to which the exemption applied
The exemption applies to income received from relevant events held in a maximum period of 12-calendar months only. This begins with the date the first event is held in a ‘testimonial year’, even if that year covers more than one tax year.
Employed sportspersons who have a contractual entitlement or customary right to a sporting testimonial will not be affected by these changes. They’ll be charged Income Tax on all their sporting testimonial income and the ‘one-off’ exemption will not apply.
More than one event
A second testimonial event and a second testimonial are not the same and are treated differently for tax purposes.
If a sportsperson has another benefit match within 12-calendar months of the first match, the event income can qualify for the £100,000 exemption. Any spare exemption from the first match can be used on income from the next if it’s:
- part of a testimonial season being administered by the same controller (normally the independent testimonial committee)
- a second testimonial event rather than a separate sporting testimonial
For a different (separate) sporting testimonial the exemption cannot apply, no matter how close it is in timing to the first one.
Responsibilities
Changes to the rules mean there can be more actions to take.
For a sportsperson
The independent testimonial committee should make the appropriate deductions from the sportsperson’s testimonial income.
If the sportsperson is not in employment elsewhere, they should give their P45 to the independent testimonial committee who will act like their employer in accounting for the income.
If the sportsperson does not have a current P45 to give to the independent testimonial committee, they should confirm their circumstances with the committee using a new starter declaration.
If the P45 has not been made available to the testimonial committee, the sportsperson may need to declare all of their income on a Self Assessment tax return. This is because the testimonial committee can only deduct basic rate tax in those circumstances and there may be more tax to pay.
Independent testimonial committee
The independent testimonial committee should make the appropriate deductions from the sportsperson’s testimonial income.
The independent testimonial committee should allow £100,000 of Income Tax free, then operate PAYE (see Second testimonial) if the:
- sporting testimonial is non-contractual or non-customary
- testimonial was announced on or after 25 November 2015
- income is from an event or events taking place on or after 6 April 2017
- income relates to a testimonial event or a testimonial season lasting no more than 12-calendar months
- sportsperson is employed or was formerly employed as such
If the amount of income within 12-calendar months has not used up all of the £100,000 exemption, it cannot be rolled forward to set against future testimonial income.
Reporting
When the sporting testimonial falls within the new rules explained above, income in excess of £100,000 must be reported to HMRC.
You should report the sportsperson’s income to HMRC online and in real time, either at the time you make the payment or beforehand. You will need a PAYE scheme to do this.
For the purposes of the testimonial or benefit match, the independent testimonial committee will be treated as an employer. The committee should operate PAYE on any income above £100,000 to collect the Income Tax due and pay the Class 1A National Insurance. You must have a PAYE scheme before you can make payments to the sportsperson.
You can register with HMRC for a PAYE scheme up to 2 months before you start making payments. Read about the Basic PAYE Tools that will enable you to meet your PAYE obligations.
Income Tax
The amount of Income Tax to deduct will depend on whether the sportsperson is still employed elsewhere. If they are not employed elsewhere and they give you a current P45, you can use the tax code on it when you make a payment to them.
If you are not given a current P45, you can work out your new employee’s tax code and read the new starter checklist. You should pay over tax you have deducted to HMRC.
It’s important to remember, the obligations you have as an employer are limited to accounting for the taxes due only. You do not have to:
- hold employers’ liability insurance
- enrol the sportsperson into a workplace pension scheme
- provide a written statement (contract) of employment
Read about telling HMRC about a new employee.
Class 1A National Insurance
The amount of Class 1A National Insurance to pay is the amount of income above the £100,000 threshold multiplied by the Class 1A National Insurance rate, currently 13.8%.
The Class 1A National Insurance must be paid and reported in real time.
The obligations you have as an employer are limited to paying and accounting for the National Insurance due only. You do not have to:
- hold employers’ liability insurance
- enrol the sportsperson into a workplace pension scheme
- provide a written statement (contract) of employment
Find out if there are VAT implications
As a member of an independent testimonial committee, you’ll need to consider whether any of the committee’s activities result in transactions that may be subject to VAT.
Whether activities are subject to VAT will depend on the circumstances. For example, admission for spectators to sporting events is subject to VAT whereas donations are not.
Examples
Events taking place before and after 6 April 2017
I’m involved in organising a testimonial season for a sportsperson. It was announced after 25 November 2015, but has events taking place both before and after 6 April 2017.
Only the income from events taking place on or after 6 April 2017 will be affected by the new rules. The income from events taking place before 6 April 2017 should be dealt with using previous rules.
Retired sportsperson’s testimonial
I’m organising a testimonial for a sportsperson who has now retired. Will the new rules apply?
The new rules apply to income raised for sportspersons whether they’re employees or former employees and as long as the main reason is to recognise their service as an employed professional sportsperson.
Testimonial for a deceased sportsperson
A sportsperson tragically died as a result of injuries received in a match. I’m arranging a sporting testimonial to raise funds for the family which will be paid directly to them. Will this fall into the new rules?
If payment is to be made direct to the family, it does not fall within the new rules and you will not have to account for Income Tax or National Insurance contributions.
Any payment to the sportsperson’s estate will fall into the new rules, meaning Income Tax will be due, but National Insurance contributions will not. Corporation Tax may apply in both cases because an independent testimonial committee is normally treated as an unincorporated company.
Work out what to report
Sportsperson A is awarded a testimonial match which raises £153,000 after costs. What should be reported to HMRC?
If the sportsperson qualifies for the £100,000 exemption, £53,000 should be reported to HMRC.
Make deductions before payment
The sporting testimonial has cleared the sum of £153,000. Can I pay the entire amount to sportsperson A?
No, you should account for the relevant amount of Income Tax and Class 1A National Insurance contributions before the payment is made.
What to do about non-cash benefits
What if testimonial income comes in the form of cash and a non-cash benefit such as a car?
The value of any non-cash or cash benefit should be added to the amount of money raised to get to the total of the income received.
Already had a testimonial before 6 April 2017
A sportsperson who’ll have a testimonial after 6 April 2017 and who’s previously had a testimonial prior to the new rules taking effect. Are they eligible for the £100,000 exemption and is the testimonial their first for tax purposes?
In this instance the testimonial would be their first for tax purposes, and the income raised would also be eligible for the £100,000 exemption as appropriate.
Second testimonial
Sportsperson B was awarded a second testimonial. The first testimonial took place after 6 April 2017 and raised £70,000. As this income fell within the £100,000 exemption, it was paid tax free and was not reported to HMRC. The second testimonial raised £83,000 after costs. Do I report £53,000 for tax purposes?
No. The unused exemption cannot be rolled forward to be used for a subsequent testimonial. The entire amount of £83,000 must be reported to HMRC.
Updates to this page
Last updated 12 March 2020 + show all updates
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The Welsh version of 'Sporting testimonials: Income Tax and National Insurance payments' has been updated.
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The English version of 'Sporting testimonials: Income Tax and National Insurance payments' has been updated.
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The 'matching changes for National Insurance Contributions will now apply from 6 April 2020 and arrangements for payment will apply until 5 April 2020' has been updated.
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Updated to mention the introduction of employer NICs on sporting testimonial payments above £100,000 will now take effect from 6 April 2019.
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Added translation to Welsh language.
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First published.