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Comment: What Is The Future Of Football Testimonials?

Thu 28th Jan 2016 | Legal

Nicola Hewitt, specialist tax lawyer at Walker Morris comments on the changes to football testimonials…

This history of sporting testimonials is a long one.  The practice started as a means to pay tribute to a particular player, usually at the end of their career, and to provide a tax free lump sum for their retirement when the sport offered relatively low wages and a short career.  These payments were typically modest and usually took the form of a whip-round amongst the crowd.  As the practice has grown so have the proceeds, leading many to question why footballers (and other sportsmen and women) are still able to take advantage of the tax free status of these payments.

Not unsurprisingly then, the Government announced in the Autumn Statement 2015, following consultation over the summer, that it would be changing the treatment of sporting testimonials. Once these changes take effect, the proceeds from these events will no longer be entirely exempt and will instead attract income tax and National Insurance Contributions (NICs).  The changes will affect events taking place after 5 April 2017 unless the testimonial was awarded before 25 November 2015 when the changes were announced.

The current exemption for sporting testimonials is governed by HMRC guidance and can be traced back to the case of Seymour v Reed [1]. In 1920, a committee of Kent Country Cricket Club organised a benefit match for James Seymour and paid over the gate money to Seymour.  The Revenue sought to tax that payment as Seymour's income. The Courts ultimately ruled in Seymour's favour and the payment was determined to be a gift. As a result, payments to a player arising from sporting testimonials were treated as tax exempt gift unless the testimonial was part of the player's contract or he had a customary right to receive a testimonial. If the testimonial is part of the player's contract or is a customary right, the payment has always been taxable income. 

Under the new rules, players will be able to access a £50,000 exemption but all income from a sporting testimonial above this threshold will be subject to income tax and NICs. The exemption will be available only once during a player's lifetime and will be available for a maximum of 12 months from the first testimonial event. The exemption will not be available if the testimonial is contractual or customary.

Another consequence of these changes is the impact on PAYE and the collection of NICs.  Independent testimonial committees are often established to arrange and manage sporting testimonials, in part to ensure that the employer is removed from the arrangement, thereby diminishing the possibility of the income being treated as contractual or customary.  However, once the changes come into effect, such committees will need to be prepared to operate PAYE and collect employee's NICs on any payments made to the player.  The committee will also be liable for employer's NICs.

Given the significant increase in players' wages and the changing face of tax morality, it is not unsurprising that the practice of continuing to allow players to benefit from tax free income has come under the spotlight. It must also be one of the reasons why many of the top players now choose to donate the proceeds of their testimonial matches to charitable causes. It is therefore helpful to learn that Gift Aid and Payroll Giving will continue to be available to players making charitable donations.  However, in its response to the consultation, HMRC has clearly stated that it does not intend to extend that relief to NICs as this would not be in line with current policy.  Therefore, if the donation is made by the player personally, employee's and employer's NICs will still be due.  This is certainly a disappointing view as it is the charities which ultimately bear this cost. 

Returning to the title of this article, is there still a future for sporting testimonials? The answer is probably yes. Players at the lower levels receiving modest payments (being those for whom the practice was originally intended) will continue to fall below the £50,000 exemption.  Whilst players at the top levels will likely continue the trend towards charitable giving, a practice which has already raised millions of pounds for charities. The impact will be felt most by those caught in the middle.  It is at this level where clubs and players may think twice before organising a testimonial and only time will tell what the true impact of these changes will be.

[1] [1927] AC 554

Nicola Hewitt is a lawyer in the Walker Morris Tax Team


0113 283 2500

Posted by: Aaron Gourley



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