Now you are a Champion, don’t forget to pay VAT! Reply

 Prize. Poster Comic Speech Bubble. Vector illustration.
Tax on prize money has a few complications.

HMRC doesn’t regard lottery winnings as income, so all prizes are tax free, hooray!

But the problems start when you give the money away, as reported in the Guardian in 2012

The cash will form part of your estate and be liable for 40% inheritance tax (IHT) if it takes the value of your estate above the current threshold of £325,000.

Gifting millions will not save you from paying IHT either: HMRC will tax you on a sliding IHT scale should you die within seven years of gifting any cash to friends and relatives – a 20% reduction in tax if you die between three and four years after gifting, a 40% reduction between four and five years, etc). You can get around this by making sure the recipient signs an agreement that they will pay any IHT due if you do die within seven years.

The IHT issue also applies where you have a syndicate without a syndicate agreement.

The solution to this is to have a syndicate agreement , then you can look forward to spending your fortune.

The reasoning behind HMRC’s thinking goes back to the case of Graham v Green [1925] 9TC309 and concerned a man whose sole means of livelihood came from betting on horses at starting prices.

The basic position is that betting and gambling, as such, do not constitute trading. Rowlatt J said in Graham v Green [1925] 9TC309:

A bet is merely an irrational agreement that one person should pay another person on the happening of an event.

This shows that having expertise or being systematic (“studying form”) is not enough to create a trade of being a ”professional gambler”.

Some ”professional gamblers” do carry on a trade, for example, where they receive appearance money for appearing on television programmes. They are providing a service to a customer (the television production company) for reward. Whether their gambling winnings are proceeds of that trade would depend upon the facts. BIM22017

The other problem for HMRC is that if you tax ‘winnings’ you would have to allow tax deductions for ‘losing’ and there are more losers than winners.

Things get complicated when it comes to sporting events, in general, amateur sporting prizes are tax free, here are HMRC’s examples for Community Amateur Sports Clubs:

Clubs may wish to arrange prize competitions where the nature of both the competition and the prize is such as to promote participation in the sport. In strictness there is nothing to permit this but where the value of prizes, are commensurate with amateur participation in the particular sport these would not prevent club from being registered. Competition prizes of sufficient value to attract professionals or such frequency that could be equated with payment to players would preclude qualification as a CASC.

Example 1 A Cycling club promotes races in which members and others, particularly local juniors, are encouraged to participate. Modest cash prizes are awarded and funded from entry fees and local sponsorship. This would be acceptable.

Example 2 A Golf club holds regular competitions for members throughout its season. Although individual events may be limited by gender or handicap, all members are able to participate in some of the competitions. Prizes of golf equipment, for example bags, shoes, balls or vouchers redeemable at the club shop are awarded. Again, this would be acceptable.

Example 3 A Bowling club organises frequent competitions for club members with cash prizes subsidised by a brewery. Senior players derive significant benefit from these arrangements. A club that subsidised its members in this way would be unlikely to qualify as a CASC.

When it comes to professional sporting events the tax can be significant and has led to problems attracting sporting stars.

Like most countries, the UK charges tax on appearance fees and prize money when non-resident athletes compete in Britain but, unlike many other countries, it also seeks to tax the athlete’s global endorsement income.

Based on the number of days spent competing in the UK, Her Majesty’s Revenue and Customs charges tax on a percentage of the athlete’s income earned elsewhere.

“It’s like me asking you to come to work today and pay three times in tax what you’re getting”

As reported in the Telegraph in February 2013.

What may professional sports competitors don’t realise is that prizes can be subject to VAT!
6.6 Prizes, prize money and appearance money
Prizes and prize money awarded to, and appearance money paid to competitors, are always treated in the same way, regardless of whether the entry fees for the competition are exempt or taxable.
Prizes and prize money are outputs and appearance money is an input. Details of their treatment are shown in Notice 701/5 Club and associations.

steve@bicknells.net

Tax on Prize Winnings Reply

Lottery scratch card

HMRC doesn’t regard lottery winnings as income, so all prizes are tax free, hooray!

But the problems start when you give the money away, as reported in the Guardian in 2012

The cash will form part of your estate and be liable for 40% inheritance tax (IHT) if it takes the value of your estate above the current threshold of £325,000.

Gifting millions will not save you from paying IHT either: HMRC will tax you on a sliding IHT scale should you die within seven years of gifting any cash to friends and relatives – a 20% reduction in tax if you die between three and four years after gifting, a 40% reduction between four and five years, etc). You can get around this by making sure the recipient signs an agreement that they will pay any IHT due if you do die within seven years.

The IHT issue also applies where you have a syndicate without a syndicate agreement.

The solution to this is to have a syndicate agreement , then you can look forward to spending your fortune.

The reasoning behind HMRC’s thinking goes back to the case of Graham v Green [1925] 9TC309 and concerned a man whose sole means of livelihood came from betting on horses at starting prices.

The basic position is that betting and gambling, as such, do not constitute trading. Rowlatt J said in Graham v Green [1925] 9TC309:

A bet is merely an irrational agreement that one person should pay another person on the happening of an event.

This shows that having expertise or being systematic (“studying form”) is not enough to create a trade of being a ”professional gambler”.

Some ”professional gamblers” do carry on a trade, for example, where they receive appearance money for appearing on television programmes. They are providing a service to a customer (the television production company) for reward. Whether their gambling winnings are proceeds of that trade would depend upon the facts. BIM22017

The other problem for HMRC is that if you tax ‘winnings’ you would have to allow tax deductions for ‘losing’ and there are more losers than winners.

Things get complicated when it comes to sporting events, in general, amateur sporting prizes are tax free, here are HMRC’s examples for Community Amateur Sports Clubs:

Clubs may wish to arrange prize competitions where the nature of both the competition and the prize is such as to promote participation in the sport. In strictness there is nothing to permit this but where the value of prizes, are commensurate with amateur participation in the particular sport these would not prevent club from being registered. Competition prizes of sufficient value to attract professionals or such frequency that could be equated with payment to players would preclude qualification as a CASC.

Example 1 A Cycling club promotes races in which members and others, particularly local juniors, are encouraged to participate. Modest cash prizes are awarded and funded from entry fees and local sponsorship. This would be acceptable.

Example 2 A Golf club holds regular competitions for members throughout its season. Although individual events may be limited by gender or handicap, all members are able to participate in some of the competitions. Prizes of golf equipment, for example bags, shoes, balls or vouchers redeemable at the club shop are awarded. Again, this would be acceptable.

Example 3 A Bowling club organises frequent competitions for club members with cash prizes subsidised by a brewery. Senior players derive significant benefit from these arrangements. A club that subsidised its members in this way would be unlikely to qualify as a CASC.

When it comes to professional sporting events the tax can be significant and has led to problems attracting sporting stars.

Like most countries, the UK charges tax on appearance fees and prize money when non-resident athletes compete in Britain but, unlike many other countries, it also seeks to tax the athlete’s global endorsement income.

Based on the number of days spent competing in the UK, Her Majesty’s Revenue and Customs charges tax on a percentage of the athlete’s income earned elsewhere.

“It’s like me asking you to come to work today and pay three times in tax what you’re getting”

As reported in the Telegraph in February 2013.

steve@bicknells.net

 

 

Can you reclaim the VAT on Sponsorship? Probably but not always 1

Branding

Generally sponsorship is subject to VAT because normally the organisation you sponsor will be making taxable supplies to you because in return for sponsorship, they are obliged to provide the sponsor with a significant benefit. Typically this might include any of the following:

  • naming an event after the sponsor;
  • displaying the sponsor’s company logo or trading name;
  • participating in the sponsors promotional or advertising activities;
  • allowing the sponsor to use your name or logo;
  • giving free or reduced price tickets;
  • allowing access to special events such as premieres or gala evenings;
  • providing entertainment or hospitality facilities; or
  • giving the sponsor exclusive or priority booking rights.

Donations and gift are not normally subject to VAT.

The rules are in HMRC Reference:Notice 701/41 (March 2002)

A business can recover input tax on their legitimate costs when it:

  • promotes its business; or
  • provide facilities to its staff.

When a business only makes sporting or recreational facilities available to:

  • the proprietor
  • the partners
  • the directors of a company
  • the relatives and friends of the proprietor, partners or company directors

it is unlikely that this expense can be treated as being for the purpose of the business. Therefore, the VAT incurred would not qualify as input tax.

In the case of smaller businesses there is an increased risk that the sponsorship is conducted for a private purpose so the VATman has come up with a set of tests:

VIT44300 – Specific issues: test for sporting and recreational activities

Does the proprietor, partner or director actively take part in the sport?
If the proprietor, partner or director cannot take part because of injury or business commitments is another (independent) person employed to drive?
Does a member of the proprietor, partner or director’s family actively take part in the sport?
Is there a connection between the sport and the business?
Where does the sporting activity take place?
Is there extra advertising at the racing venue or in programmes?
Is there related advertising or promotional material?
Does the business name appear on the sporting vehicle, transporter or clothing?
For companies and partnerships is there a record of a decision to use sporting facilities for advertising?
Can the business produce any evidence of research into the benefits to be gained from the advertising?
Are the benefits of the advertising monitored?
Is the car or boat an asset of the company?
What other forms of advertising are there?
Has HMRC given a ruling for direct tax purposes?
Could the business cope with an expansion of trade?

steve@bicknells.net