It is no secret that tax is a significant issue for those involved in professional sport. While you can earn healthy wages as a rugby player, this can cause you to have a higher tax liability.
Furthermore, there may also be additional considerations as a result of how you are taxed for certain work. In particular, if you carry out specific kinds of work (especially in the media) then you may find yourself facing the IR35 rules.
You might have seen the IR35 rules referenced in the news before, as many high-profile individuals have found themselves affected by them.
In March 2023, former footballer-turned-television presenter Gary Lineker won a battle against HMRC after he was accused of underpaying nearly £5 million in tax.
More recently, in June 2024, it was announced that broadcaster and presenter Adrian Chiles will face a fourth tribunal over a £1.7 million tax bill dispute that has been ongoing for more than 10 years.
As a rugby player, you could find yourself in this position yourself, just as former Australia fly-half Michael Lynagh did. After carrying out work for Sky Sports as a commentator, Lynagh found himself facing a £230,000 tax charge.
These tax bills are sizable and could put significant strain on your finances if you are ever faced with one. Furthermore, even if you never have to pay it, the process of having to defend yourself could be stressful and lengthy. Indeed, Adrian Chiles has had this issue running on for over a decade, while it took Gary Lineker six years to finally put the matter to bed.
So, find out how the IR35 rules work, why you could be affected, and what you can do to avoid an unexpected bill.
IR35 rules relate to “off-payroll” work
The IR35 rules are more commonly referred to as the “off-payroll working rules”, as they specifically relate to how you are taxed if you complete work for a company while you are not on its payroll. Instead, you might have completed the work through a separate limited company, partnership, or another individual.
For example, all three of Lineker, Chiles, and Lynagh completed work for media institutions such as the BBC, ITV, and Sky. However, none of them were officially employed by these entities, instead completing the work through their own separate companies.
If an individual carries out work on behalf of a company through an intermediary like this, such as their own business, then this is where the IR35 rules come into play. The question revolves around whether that individual is self-employed or an employee for the company that they complete the work for.
The purpose of these rules is to ensure that contractors pay the same tax obligations as employed individuals. Otherwise, individuals can attempt to receive a salary tax-efficiently by stating they are self-employed, when they are essentially an employee.
Being “inside IR35” means you are considered an employee for tax purposes. In that instance, the company you complete the work for must deduct National Insurance (NI) and Income Tax from your fee as if you were an employee.
Unless they are a small business in the private sector, it is the responsibility of the company hiring you to decide whether you are inside IR35, and to calculate the NI and Income Tax bill you owe.
Meanwhile, if you are deemed self-employed and so not inside IR35, this will be your responsibility to pay the necessary tax through self-assessment.
The rules are applied on an individual contract basis. So, you might have multiple contracts with one employer, with some falling inside IR35 while others are outside.
However, if you are initially found to be outside IR35 but HMRC disputes this, you may subsequently receive a bill for the unpaid Income Tax and NI payments that you should have paid as an employee, as well as a fine.
Take the Michael Lynagh case as an example. In this instance, Lynagh had completed work as a pundit and commentator for Sky, but through his own company MPTL Ltd.
Initially, Lynagh had paid the bill as a self-employed contractor. But HMRC deemed this work to be inside IR35, landing him with a £230,000 bill for missing tax and NI payments.
Unfortunately, an accountant working on behalf of Lynagh missed a key deadline for appealing the decision, ultimately leaving him facing a charge.
You could find yourself subject to the IR35 rules, especially if you pursue a media career
Any occupation could theoretically fall within IR35. But, it might be a particularly pressing concern if you are a rugby player.
High-profile IR35 cases often relate to television presenters as it is fairly common practice to contract this work to a separate company that you own.
You might have the opportunity to do media work during your playing days. Or, you might decide to pursue television and commentary work full-time once you have hung up your boots.
Either way, depending on the nature of the work and your employment status, you could potentially be considered inside IR35 if you ever work in sports presenting.
Being aware of the tax rules surrounding this work is paramount. Otherwise, you could find yourself with an unexpected and unwelcome tax bill down the line.
Familiarise yourself with the rules before you start working so you are prepared for a bill
Realistically, there is little you can do to avoid being in IR35. If you are working off-payroll, it is a distinct possibility that HMRC will consider you inside IR35, and so you will owe NI and Income Tax as an employee.
That said, it is still possible to mitigate the possibility of falling foul of IR35 rules, avoid an unexpected tax bill down the line, and prevent an ongoing tribunal battle that drags on for years.
This is simply by ensuring that you familiarise yourself with the rules as far as you can if you are completing work off-payroll like this. Make sure you know and understand how the company you are working for is considering your position, and double-check that the tax bill you pay is correct.
Generally, HMRC will use three criteria to determine whether you fall in or outside of IR35:
- Control: Does the company you are working for determine what you do, and how, when, and where you complete your day-to-day work?
- Personal Service: Are you required to carry out the work yourself, or can you send someone in your place?
- Mutuality of obligation: Is the company obliged to offer you work, and are you obliged to accept it?
It is also worth noting that the rules on tax bills changed in April 2024. Now, if you pay a tax bill as a self-employed contractor and are later deemed inside IR35 by HMRC, you may be able to offset what you have already paid against a new charge.
As you can see, the rules are complex. It can be sensible to work with a professional, such as a tax adviser or accountant, to ensure that you have fulfilled your tax duties correctly and compliantly.
At the very least, this belt and braces approach could help you avoid an unexpected tax bill that takes years to settle.
Get in touch
Careful tax planning is crucial for rugby players to ensure that you can make the most of your wealth, both during your playing days and in your second career.
If you would like to find out how we can help you make effective decisions with your wealth, then please do get in touch with us at DBL Asset Management.
Email enquiries@dbl-am.com or call 01625 529 499 to speak to us today.
Please note
This blog is for general information only and does not constitute advice. The information is aimed at retail clients only.
Please do not act based on anything you might read in this article. All contents are based on our understanding of HMRC legislation, which is subject to change.
The Financial Conduct Authority does not regulate tax planning.
