A review of HMRC’s changes to the taxation of sports testimonials and benefit matches

This article explains (i) how income received by athletes from testimonial and benefit matches is currently treated; (ii) the issues that HM Revenue & Customs (the Revenue) have with the current treatment; and (iii) the proposed changes to the treatment that were recently announced by the Government in their Autumn Spending Review. It will be particularly useful for clubs, athletes and their advisory teams.

Seymour v Reed

James Seymour played cricket for Kent before and after the First World War. A prolific run scorer, who scored over 2000 runs in 1913 and over 50 first class centuries during the course of his career, he deserves better than to be remembered primarily for lending his name to a decision concerning tax law.¹ That decision, the House of Lords judgment in Seymour v Reed,² established the judicial precedent for the tax treatment of income derived from sporting testimonials.

The case concerned Seymour's benefit match at Canterbury in 1920. Under the rules of the Kent County Cricket Club at the time, its professional cricketers might be granted a benefit. The organisation of the benefit match, the collection of subscriptions and its subsequent distribution were reserved to the discretion of the club committee. The committee paid over the gate money to Seymour (who used it to buy a farm). The Revenue sought to tax the payment as income.

The House of Lords ruled that the payment was not taxable. It held that where, as in Seymour's case, a benefit match or testimonial was organised to demonstrate an appreciation for the qualities of a player, the proceeds are not to be treated as earnings and are not taxed as employment income. Instead, the payment was to be treated as a gift to the player in his personal capacity.

The current treatment

The decision in Seymour v Reed has not meant that payments to a player from a testimonial or benefit match will never be subject to income tax as earnings derived from employment. The position is set out in Revenue "concessionary" guidance:³ it all depends on the particular circumstances of the player and his or her club. Where the right to a testimonial or benefit is written into the player's contract of employment, or where the club always grants its players a testimonial or benefit, the proceeds will be taxable as income derived from employment.⁴

There does not have to be a written contract for this to be the case; it could be a verbal agreement or simply "standard practice" at the club. In each case, therefore, it is necessary to look at the terms of the player's own contract and, if there is no contractual entitlement, at what is customary at the club.

It is more likely that the proceeds from a testimonial or benefit will not be taxed as earnings from employment where the testimonial or benefit is organised by a "testimonial committee" that is independent of the club.

This has become common practice across different sports; the rationale is that it removes the existence of an employment relationship between the player and the entity providing the testimonial or benefit – thus making it harder to argue that the payment is earnings derived from employment.