Taxing times: why HMRC's demands have sprint king running scared

Q. The showcase 100m race last night in Stockholm featuring Usain Bolt and Tyson Gay was originally scheduled for next weekend in London but Bolt pulled out of that because of Britain's punitive tax laws; what's the problem?

A. HM Revenue & Customs attempts to claim tax not just on foreign sportsmen's direct earnings on British soil (prize money won at Wimbledon, for example) but on a proportion of an athlete's annual endorsement earnings. HMRC has a dedicated unit that monitors foreign stars' work in Britain, and makes tax demands. Recent changes in the interpretation of what is and isn't taxable, and a greater appetite to chase payments, mean bigger bills for some. "It's becoming a significant problem as the value of endorsements increase," says Hartley Foster, head of tax disputes at law firm Olswang.

Q. So what is Bolt's specific problem with competing in London?

A. He has no problem paying British tax on appearance fees (ie direct earnings) in Britain. But the tax on endorsements is now calculated on a pro rata basis of all his activity. So, if he runs 10 races per year, and one is in Britain, HMRC hand him a tax bill relating to 10 per cent of all his income. In theory, he could end up paying HMRC more for appearing in London than he earns, which is about £200,000 per event (minus tax).

Q. Why do so many other millionaire stars – Federer, Nadal, Tiger, Champions League footballers, F1 drivers, et al – keep coming?

A. Some do limit their appearances in the UK; Sergio Garcia has explicitly stated tax as a reason. Most receive reciprocal tax breaks in their home countries under international laws and treaties designed to prevent double taxation.

Q. Why doesn't this help Bolt or Garcia then?

A. If a sportsman comes from a country where tax levels are lower than the UK, then getting a tax break at home for having paid tax in Britain doesn't actually help financially. You're still paying more tax in Britain. Bolt's tax bill under Jamaican law is low because of tax breaks for sportsmen. West Indies international cricketers, for example, pay no income tax because of historic reasons related to being ambassadors and role models.

Q. In the run-up to the London Olympics, should Britain be scaring off superstars with punitive taxes?

A. The Olympics are exempt, as is the 2011 Champions League final, as would be the 2018 World Cup. HMRC say: "It is only fair that sportspeople pay tax on the money they make from sponsorship connected with their UK appearances... The UK is not alone in taxing endorsement income; it is covered by the normal OECD model convention discussions."

Q. How come Bolt ran in high-tax Sweden?

A. Every country makes its own exemptions. Dubai, for example, has no income tax, and attracts big names to tennis, golf, racing and other events because of that.