Sports Tax case studies
Sports Business Group
Case study 1 - National Governing Bodies of sport and taxation
Deloitte have worked with a number of National Governing Bodies (NGBs) of sport to try to minimise the corporation tax suffered by such entities. HMRC often argue that contributions by NGBs to grassroots sport are not “wholly and exclusively for the purposes of the trade” of NGBs. The “trade” of NGBs (for tax purposes) is to promote elite sport, but in turn the surpluses generated by elite sport are invested into grassroots development. However, doing this causes significant tax exposures for NGBs. At the current corporation tax rate of 28%, if a NGB of sport was in a break-even position for accounting purposes for a financial year, having distributed £10m to grass roots sport, the NGB would face a corporation tax charge of £2.8m.
There appears to be an inherent unfairness in this approach from HMRC, especially given that many “commercial” entities actually receive an additional tax deduction for expenditure on research and development; and expenditure on grass roots sport would appear to be development expenditure for NGBs. Deloitte have assisted a number of NGBs in establishing a charitable entity to fund grassroots sport, whereby the NGB will make charitable donations prior to year-end. The charity can then apply these funds for charitable purposes, with the objects of the charity being set out to explicitly benefit grassroots sport. This charity approach increases administrative complexity and requires a significant commitment of management time, but is efficient from a tax perspective. Deloitte continue to lobby Treasury with the NGBs for an exemption from corporation tax.
Case study 2- Major international sporting events and taxation.
Deloitte has worked with a number of major sporting events over the years to ensure that tax exposures are minimised. In 2005, Deloitte supported London 2012 in drafting bid documents for the IOC, including an extensive section on taxation. Following the success of the bid, LOCOG (supported by Deloitte) liaised with HMRC to ensure that the key tax promises; a tax exemption for LOCOG itself, ensuring the IOC were not subject to taxation and providing a tax exemption for athletes on games-related income, were delivered as part of the 2006 Finance Act.
Following this work, Deloitte have continued to act for LOCOG and have leveraged this experience and supported a number of other major international events. Further, Deloitte are currently lobbying Treasury in relation to providing a tax exemption for one-off International Events; both from a corporate tax perspective, as the economic impact of hosting the event should far exceed any corporation tax generated, and from a player tax perspective to ensure that athletes are not deterred from competing in major events in the UK due to taxation consequences.
Case study 3- Major Stadium construction project
Deloitte have advised on the tax implications of all aspects of stadium developments; from construction on new sites, reconstructing existing sites and extension of current facilities. No two stadium projects are the same, and it is important to consider each stadium project and its own peculiar tax complications separately.
The key areas to consider in a stadium construction project can include:
- contaminated land relief if developing on existing “contaminated” land;
- corporation tax due on chargeable gains accruing on the disposal of an existing site;
- stamp duty land tax (SDLT) payable on the acquisition of a new stadium (and where the existing stadium is exchanged for new premises, a double SDLT charge can arise);
- maximising VAT recovery on the construction project;
- understanding whether the Construction Industry Scheme applies in relation to sub-contractors and filing the appropriate returns with HMRC;
- maximising capital allowances (see below); and
- ongoing corporation tax consequences of mixed use stadium assets (generating both trading and rental income streams).
Our integrated specialist teams with significant experience in this area enable us to provide complete solutions to this complex area.
Case Study 1 – Major Stadium construction project
Deloitte were engaged from the outset of this project and advised the client on tax depreciation issues throughout the planning, design, construction and operation phases of the development. The work initially involved providing assessments of the potential capital allowances to assist in the funding process and advice around the various contracts entered into to ensure the flow of information to aid future assessments. Subsequent work involved the preparation of detailed assessments of the expenditure on an annual basis and discussions with HMRC. This has resulted in the client being able to utilise the capital allowances throughout the construction phase of the project to assist with their overall tax position and cash flows.
Case Study 2 – On going venue development for major UK sport
Deloitte are the client’s retained tax depreciation advisors in respect of the on-going work for the development of the client’s facilities to ensure it retains its status as a premier sports venue. Our work involves the preparation of detailed assessments of the expenditure on a rolling basis and subsequent agreement with HMRC. The work has resulted in the client maximising their entitlement to capital allowances which has reduced their overall tax liability thereby enabling them to be able to distribute a higher amount to the sports governing body for reinvestment into the sport in the UK.
Case study 1 - Leading county cricket club
One of the largest and most prestigious county cricket clubs was the subject of an employer compliance review by HMRC. HMRC challenged the tax treatment applied to a number of areas including testimonials, image rights, termination payments, employment status and staff entertainment. The county engaged the services of the GES sports team in order to manage the review and negotiate with HMRC over the tax/NIC liabilities. The final settlement was less than a quarter of the six figure liability initially sought by HMRC.
Case study 2 - Globally recognised league governing body
HMRC have been undertaking a systematic review of image rights contracts which are used extensively in this sport. When implemented incorrectly and not subject to ongoing review by the parties concerned, a PAYE/NIC exposure can arise on the image rights payments. Acknowledging the sustained review of these arrangements by HMRC and the associated risks, the governing body engaged the GES sports team to prepare a paper addressing the key considerations when entering into and reviewing image rights agreements. The paper is now available for all the teams playing in the league in order to give more consistent and robust guidance on implementing image rights contracts.
Premier League football clubs new stadium projects
Deloitte has worked with a number of Premier League football clubs to assist in ensuring that new stadium projects do not create an unnecessary VAT cost. Due to the expense of new stadia and the tight budgets, it is essential VAT is considered at the outset to ensure strict control on costs. One stadium we advised on required a number of property acquisition and disposals as well as providing social housing in the areas around the stadium – all of which have significant VAT issues. Our team of VAT specialists advised on the structure and negotiations between parties to minimise any VAT exposure.
Deloitte has worked with a number of sports businesses which have been involved in acquisitions by private equity investors. The VAT incurred on costs associated with such transactions can be very significant and HMRC often challenge VAT recovery. Deloitte helped save significant amounts of VAT by assisting discussions with HMRC and ensuring VAT was correctly recovered.