UK golf is in a great place. 25 of the top 200 golfers in the world are from the UK (GB & NI), and 14 of those are in the top 100.
The question is, are golfers living in the UK maximising their earnings as well as their birdie opportunities?
UK tax resident golfers are as entitled as any other self-employed individuals to trade through a UK company, if they wish, rather than simply as a sole-trader.
Whilst not quite this straightforward, the headline tax figures are as follows:
The highest rate of personal income tax is 45%
The corporation tax rate is 19%
There is an additional tax to pay personally when players extract funds from their trading company, either for personal expenditure during their career or on retirement, but these can be managed and planned for accordingly – resulting in a favourable effective tax rate.
You would think therefore, that players would trade through a company. I would have thought so too.
However, whilst lots of players use a company for their commercial income, lots are trading personally for on-course (playing) income and paying tax at 45% (plus 2% national insurance) on most of their income.
Whilst I would say this, it’s those players that I’d like to convince that they should be speaking to a specialist sports tax advisor/accountant (contact details below).
I thought you couldn’t do that?
Whether an overly prudent position or common misconception, “companies don’t hit golf shots, people do” seems to be a common repost to golfers asking other advisers about earning on-course income through a company. My response would be as follows:
- “Companies don’t sing to fans in arenas, musicians do”, but they are trading through companies…
- “Companies don’t give stand up gigs, comedians do”, but they are trading through companies…
- “Steve Brown fitted my kitchen, trading through Steve Brown Limited.” Tommy Fleetwood is as entitled to operate through a corporate for his self-employed earnings as Steve Brown is.
The only reasons I can think of that UK golfers are being advised that they can’t trade through a company are as follows.
- Advisors have confused UK golfers with the guidance for foreign entertainers (and sportspeople) coming to play in the UK, where the rules look through any company to tax the individual.
- Advisors are worried about the IR35 anti-avoidance provisions, which aren’t relevant here as players cannot possibly be considered employees. Footballers for example can’t trade through a company for playing income (they can for commercial) because they are employees.
- Whilst it’s no problem to register with the European Tour to receive income as a company rather than personally, its much trickier logistically on the ATP Tour. Perhaps therefore advisors have simply advised golfers with ‘as we do for the tennis players’.
- Potential tax leakage. Albeit those numbers don’t add up, see below.
There’s obviously slightly more to it than simply deciding to start using your company but a specialist advisor should be able to assist.
Looking at playing income for 2019, the last ‘normal’ calendar year of golf, I’ve looked at a few examples of UK golfers to show how much money they would have saved if trading through a company rather than trading personally for their on-course earnings.
I have made the following (prudent) assumptions:
- Current tax rates
- Funds extracted from the company for personal use at £90k of dividends p.a. until all funds are extracted
- Players make a 70% profit from their gross on-course income
- Costs are attributed in accordance with income earnt for ease of reference
Tommy Fleetwood (2019 year-end world ranking – 10)
- Net funds as a sole trader: £2,700,000
- Net funds operating as a company: £3,200,000
Matt Wallace (2019 year-end world ranking – 30)
- Net funds as a sole trader: £910,000
- Net funds operating as a company: £1,040,000
Andy Sullivan (2019 year-end world ranking – 132)
- Net funds as a sole trader: £355,000
- Net funds operating as a company: £425,000
It should be noted that the less someone extracts from company funds for personal use each year, the more tax efficient the corporate structure becomes. I’ve used £90k a year as an estimate in the above, but if a player were to extract £50k a year for example, the numbers above would be even more favourable!
The company structure also generates other options of extraction. On a move abroad or retirement, the company could be wound up and funds extracted at favourable Capital Gains Tax rates. For players climbing the rankings and playing increasing amounts in the US/worldwide, this would be a great option.
The calculation of profit for each tournament is also important. For ease of reference (and because I don’t have cost details), costs have been estimated based on income – one way in which you can choose to attribute costs. If a player’s profit margin for on-course income is bigger than 70%, they will save more tax.
However, flights, accommodation, subsistence etc. are generally fixed costs whether a player wins a tournament or misses the cut. Therefore, subject to where a player does well, that attribution might not be the most beneficial attribution of costs.
The other option is to report profits on a country by country basis and attribute costs more specifically. Again, if this is a better option for a players’ circumstances, more tax will be saved.
Whilst I’ve given headline figures below, there’s a lot more to consider than simply the trading vehicle. At the risk of repeating myself, players should speak to a specialist advisor (contact details below).
I want to buy a house
If golfers want to buy a house, they are going to need to extract substantial funds (on top of the £90k in the example above) from their company in any given year. Or are they…?
As specialist sports advisors, we often work with similar industry specialists in mortgages and banking. Rather than extracting say £200k from your company to use as a 20% house deposit on a £1m house, banks will take a charge over those funds in your company account and lend 100% of the value of the house personally.
The bank’s risk is still only 80% of the value of the house, but it stops the individual having to pay lots of tax extracting dividends from the company, only to put them down as security to keep the very same bank happy. Obviously over time, funds have to be extracted from the company (subject to tax) to pay the mortgage, but there is no need to pay personal tax on a lump sum extracted up front.
Sensible, isn’t it?
One ‘negative’ of the corporate structure is there is likely to be some ‘tax leakage’.
Where tax has been withheld at source in a foreign country (typically as a % of gross income), and this tax withheld is over 19% of the attributable profits, the company can only claim a tax credit for the amount of corporation tax (19% on profit) that you’d pay here.
In some jurisdictions (the US being the primary golfing example), players will need to file a tax return. This will be on profits attributable to that country. There is therefore no ‘tax on income’ v ‘tax on profit’ disparity, but there would be leakage where the tax rate is above 19%.
However, much better to have a glass 81% full and then have some slight leakage, than pour nearly 50% of it away before you’ve started! The numbers above are sufficient proof of that.
If a player were to start playing a full season on the PGA Tour, at that point we’d want to re-assess their trading options. However, if they were going to play a full season on the PGA Tour, I imagine they would move from the UK and lose their UK tax residency anyway. We’d then be able to advise them on managing their UK tax residency, as well as where they might want to go to next!
The other additional cost associated with running such a corporate structure is that (our) professional fees for making corporate filings may be more expensive than players are paying to have their personal accounts done.
However, as they say: “you get what you pay for”. Like any premium service, be that caddy, putting coach or physio, we’d like to think we save players a lot more than they pay us in additional fees.
We only charge for the time we spend working on a client’s affairs at a fixed time cost. If players play twice as well next season as they played this, the corporate structure will save them a lot more tax, but our fees won’t change as a result.
We are specialist accountants and tax advisors. We don’t offer financial advice, we just make sure players tax and accounting affairs are in order. We do, however, often liaise with any financial advisors that players have, to ensure that the funds used to make investments are extracted/invested tax efficiently.
Please get in touch
If there are any players who would like to discuss this in more detail, I’m very happy to chat anything through and see how we might be able to help.
Drop me a note on email@example.com and we can arrange a call/coffee to chat further.
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