The new rules cover income from events that take place on or after 6 April 2017, but only where the testimonial has been announced on or after 25 November 2015. They do not apply to NICs, and HMRC says matching changes for NICs will apply from 6 April 2018.

Income tax is due on income from all sporting testimonial and benefit match events. Corporation tax and VAT may also be due depending on the nature of the income or how payments from the income are made.

The government has agreed that there should be a ‘one-off’ tax exempt amount of £100,000 to set against income from a non-contractual or non-customary sporting testimonial event (or year), if certain conditions are met.

This means existing arrangements for the payment of NICs will apply until 5 April 2018.

In many cases sportspersons have a contractual agreement with their employer in respect of sporting testimonials. Often the agreement will be if the sportsperson stays with the team or club for a specific number or years, they will be entitled to a testimonial, although the agreement can also cover the other matters.

If it is normal practice for a sportsperson to be awarded a testimonial in certain circumstances, this is described by HMRC as ‘customary’. For contractual and customary testimonials, all such income is treated as earnings from the employment, meaning the employee should pay income tax and Class 1 NICs and the employer or testimonial committee has to pay employer NICs.

A non-contractual testimonial will be where there is no contractual arrangement between the employer and the sportsperson. A non-customary testimonial will be where there is neither a contractual arrangement nor a testimonial award which is considered to be normal practice.

A ‘one-off’ exemption of £100,000 is available from 6 April 2017, to ensure that sportspersons on modest incomes (who are nearing end of career or have reached the end) are protected from the change.

The exemption applies to income received from relevant events held in a maximum period of 12 calendar months only. This begins with the date the first event is held in a ‘testimonial year’, even if that year covers more than one tax year.

Employed sportspersons who have a contractual entitlement or customary right to a sporting testimonial are not affected by these changes as the ‘one-off’ exemption does not apply.

HMRC’s guidance outlines the actions which sportspeople, independent testimonial committees and clubs need to take when accounting for income tax and NICs via the PAYE system, and whether VAT is also due, for example on ticket sales but not donations.

When the sporting testimonial falls within the new rules, income in excess of £100,000 must be reported to HMRC.

For the purposes of the testimonial or benefit match, the independent testimonial committee will be treated as an employer. The committee should operate PAYE on any income in excess of £100,000 to collect the income tax due.

The guidance also provides different examples of events taking place before and after 6 April 2017, including where a sportsperson has already had one testimonial before, and circumstances where the sportsperson has died and the testimonial is intended to raise funds for dependents.

HMRC Guidance Sporting testimonials: Income Tax and National Insurance payments is here.