Written evidence submitted by Richard Baldwin (Consultant at RK Baldwin Consultant)

My comments with the impact on the sport sector in mind

Details of the respondent

I am a tax adviser specialising in the taxation of the sport sector since 1981.Until 2005 I was tax partner leading Deloitte's UK sports tax practice. During my professional career as a partner, I advised the whole spectrum of sports organisations but concentrated on the taxation of the national governing bodies of sport (NGB’s) which provide the public with major sporting events at the elite level and support the estimated 150,000 (1) community sports clubs making the UK a healthier place to live in. Since my retirement I have mostly advised not for profit sports clubs largely on a voluntary basis.

I have professional qualifications as an accountant and tax adviser, I am a member of HMRC's Charity Tax Forum representing sport and honorary tax adviser to the Sport and Recreation Alliance (SRA), the representative body for the UK's NGB's. I currently deal with questions on all of the taxes facing sport providing general directional advice. I have been involved in developing ideas and making representations to make the tax regime as it applies to sport less burdensome.

In the last 5 years I have been in direct contact with over 600 community sports clubs either by email, meetings or telephone calls. I have also presented 27 Workshops and webinars on tax attended by around 1,000 club representatives. A common theme among community clubs has been the challenge to enhance cash flows to increase participation and funding to meet the costs of facility improvements. The quality of the UK’s community sports facilities is in need of improvement and tax often acts as a disincentive to investment whereas in my view it should be the opposite and support investment. Many sports and leisure facilities will not survive the pandemic especially where funded by local authorities; this grave problem needs urgent attention.

I am submitting a response because I have had a professional interest in tax for nearly 50 years most of which of late has been concerned with taxation of sport. I wish to see a fairer tax regime for sport.

Summary of my evidence

My general view of the impact of tax on sport

Tax provides a barrier to sport helping Government meet its stated aim of increasing community participation in sport, thus improving the nation’s well being and combating obesity. This barrier is reinforced by the adverse impact of tax in all its forms on NGB’s. It is the NGB’s that support their community sports clubs using funds generated by elite activities and major sporting events. Far from supporting NGB’s, tax has extracted valuable funds from NGB’s which would otherwise be made available to develop sport at all levels.

The coronavirus pandemic has made matters worse with many sports organisations facing extinction. Little financial support has been targeted at sport with the absence of any specific tax measures to help it through the current financial crisis. Furthermore grass roots clubs are being hampered in getting fully up and running again by the absence of available facilities; 73% of football pitches and 65% of tennis courts are shut (2).

Tax after the pandemic represents an ideal opportunity to recognise the valuable contribution that sport makes to our society by providing tax incentives similar to those enjoyed by the arts.

This is a personal response to the House of Commons Treasury Committee’s call for evidence based on my nearly 50 years experience of dealing with an ever more complex tax system. For the last 40 years I have been dealing with the difficulties the tax system creates for sport at all levels and this response is primarily based on the feedback I have received from contact I have had with NGB's, their community sports clubs and sports charities which I have been involved with. It also addresses the non-sport specific evidence sought by the Committee.

The importance of sport

Sport delivers significant value in terms of community and social development and well being. This has been recognised by the Government's sport strategy "Sporting Future" with its stated aims to support the sports sector particularly through the tax system.

In the last 40 years there has a failure of successive Governments to recognise and harness the beneficial social impact from participation in sport. Opportunities to reap major benefits in criminal justice, education and health are still being missed. Sport should be given a higher profile across all Government departments, particularly HM Treasury, to maximise its social impact.

In its written evidence to the Digital, Culture, Media and Sport Committee in 2019 (3) SRA stated -

"Having an active nation is important as it delivers huge benefits to society and the millions of participants, volunteers, staff and spectators."

SRA's evidence highlighted 8 national sports programmes which demonstrated the positive social impact that participating in sport had. SRA also emphasised the importance of sport and recreation as a significant economic sector in its own right -

a. total sport related employment was 1.2 million in 2015 - 3.6% of UK employment,

b. the value of the sports economy measured by Gross Value Added was estimated to be £35 billion in 2015 - 2.1% of GVA.

Many of these benefits are delivered by NGB's and their community sports club members.

In order to maintain its contribution to the economy and to increase its value in terms of community well being and social development sport needs to increase grass roots participation. To do this it needs more funds to invest. The impact of Covid-19 has made an already tight financial position for sport even worse. In its evidence to the DCMS Select Committee Inquiry the report of which has been recently published SRA stated in its May evidence (4) that-

“The financial impact of the current restrictions is severe and is being felt at all levels of the sporting pyramid”.

Any future tax system needs to address the current unfairness of many of the rules and make changes to encourage sport both to maintain sufficient funding levels and to increase its efforts to fight against the current obesity crisis. The SRA’s recent evidence to the Select Committee echoed the need for changes in the tax system to encourage sport-

“We also believe government should look at ambitious tax and giving measures which would ensure that every pound of investment into the sector should go as far as possible”.

In its commentary on the Government’s Obesity Strategy published at the end of July (5) SRA commented that “Government should fund a national sport and physical activity infrastructure plan”. The Strategy contained little reference to the role of sport even though it says “together we want to empower people to live the healthy lives they want to live”. I believe the tax system, by supporting sport, will help Government achieve that Obesity Strategy objective.

Evidence sought by the Committee

1. Long term pressures on the tax system

The collection of tax is one side of the public finances equation and in order to effectively consider the pressures on the tax system the levels of public expenditure on the other side need to be considered; an already difficult situation for the public finances has been made significantly worse by the Covid 19 pandemic. A favourable tax environment can reduce public expenditure through the use of appropriate support measures in the tax system.

Significant challenges exist-

  1. The need to deal with an ageing population with few incentives for individuals to save to meet the needs of old age. Care costs continue to increase with the level of funding for care provided by local authorities poor and many care homes subsidised by the better off who can afford to pay higher fees.
  2. The level of spending by the public sector consuming national resources.
  3. The lack of support for the not for profit sector which fills many of the voids left by the inadequacy of  public sector provision in areas such as  healthcare, homelessness, people with disabilities, exercise, sport and recreation.
  4. Insufficient encouragement through the tax system for voluntary sectors, such as sport, to help address the obesity crisis. Achieving more healthy lifestyles through participation in sport has been paid scant attention by successive Governments. The sector is provided with few tax incentives; taxation is a significant burden on sport at all levels.

Sport businesses and not for profit organisations need more freedom to operate without being strangled with the red tape imposed by a complex tax system; specifically-

  1. Taxpayers don’t understand the tax system particularly those volunteers on the management committees of not for profit sports clubs.
  2. An increasing burden is being imposed on tax payers through the wider use of self assessment for tax generally with inadequate support from reduced HMRC resources. The increasing digitalisation of tax imposes an unreasonable burden on those volunteers who have difficulty with technology and who see little benefit from it.
  3. There is an inherent unfairness in the system for those taxpayers who conduct their tax affairs properly despite these difficulties; those that don’t seldom get caught and in many cases continue to make errors with little chance of HMRC detecting them.
  4. Where dealing with taxation calls for professional advice much of this is unaffordable. Local firms of professionals advising community organisations are often simply unable to keep up with many tax developments covering the wide range of taxes to which they are exposed.

2. Protecting the tax base and the impact of the pandemic

Globalisation and tax bases (and profits) moving offshore have been a challenge for tax authorities ever since I started specialising in tax in 1972. There were many anti-avoidance measures then e.g. the intercompany pricing rules which seem to have increased exponentially since. Every new tax “dodge” seems to be met with more complicated anti-avoidance and reporting legislation. The time has come to stop the expansion of the tax code in this way; HMRC have quite enough tax avoidance and collection powers in their armoury which is expanding with the introduction of the new Digital Services Tax. The danger is that any further expansion will deter overseas companies and nationals coming here to do business.

In my view a much better approach will be to tax expenditure since even if the services or goods are supplied from oversees they will be consumed here and there is an ideal opportunity to tax their provision at the point of purchase here. We already have a Value added tax and coming out of the EU provides an ideal opportunity to use this to address any erosion of the tax base. Changes could level up the playing field for domestic suppliers without the EU breathing down our neck. It would also be an ideal opportunity to simplify and have a more strategic approach to the tax. Changes to Vat should, in my view, be a longer term objective.

The pandemic will significantly reduce the tax take because of the temporary closure of businesses (including many in the sports sector) and their subsequent slow recovery. Sport is experiencing significant reductions in income. This is reflected in major redundancies at NGB’s many of which are in the community sport support area. Community clubs are facing financial difficulties even though they are predominantly led by volunteers since many have fixed costs which need to be met. There has been little targeted support for sport (apart from a relatively minor amount of funding from the Sports Councils which was quickly exhausted). This can be contrasted with the significant levels of funding provided to the arts.

The lack of direct financial support is true generally of the support to sport provided by the tax system. As far as sport is concerned if the tax base is to be protected the answer is not to impose more taxation and red tape but to encourage sports organisations to increase their activities generating more taxation at all levels as a result.

3. Tax reform in general

In general I do not believe that the time is right for wide ranging tax reform. The system is over complicated at present and any attempts at reform in the past such as the “tax re-write project” over 10 years ago do not seem to have achieved their aims; rather they make the tax system even more difficult to comprehend and navigate with the inevitable “transitional provisions”. If there is to be reform for, example with Vat, this should wait until we are through the pandemic and the economy is on a sounder footing.

In carrying out any reform HM Treasury should realise that businesses need certainty so that any new legislation should be clear in its impact and not have to rely on HMRC guidance; this has not been the case with recent changes e.g. the taxation of Coronavirus Business Support payments where currently sports clubs are unaware of how their local authority support grants will be taxed under Finance Act 2020 which became law a month ago. Furthermore, business tax changes should not be introduced with too much haste as was the case for Making Tax Digital for Vat and the Off Payroll Working rules (the introduction of which has now been deferred).

HM Treasury should have a long term objective to simplify a complicated system which currently relies on-

  1. Reams of tax legislation all in different Acts of Parliament which is increasingly supported by Regulations via Statutory Instruments subject to less scrutiny.
  2. Pages of HMRC guidance incorporated into a massive gov.uk website which is difficult to search, and
  3. Decades of interpretation of tax law produced by the Courts; this can be difficult to understand and to access without costly professional help.

A good starting place would be to restrict the length of new Finance Acts and SI’s.

4 .Overall level of taxation

I have no quantifiable answer to this question but would say that it is that level and type of taxation delivered by a tax system which encourages sufficient economic activity to cover necessary expenditure incurred by an efficient public sector.  The latter should be working closely with the not for profit sector using the tax system to help sustain it and help it meet Government objectives. A good example of this partnership is the use of gift aid to supplement individual donations to charities by making a 25% tax rebate with HMRC Charities connecting with the not for profit sector to promote it.

This is one example of the tax support given to charities; presently the tax system acknowledges the community and social value of charities but overburdens them with complex tax rules and reliefs. Further complexity is added by the requirements of the Charity Commission which have increased over recent years to the extent that becoming a volunteer Trustee of a charity has become unattractive to many professionals.

There is little encouragement for sport via the tax system other than through the Community Amateur Sports Club (CASC) scheme for not for profit sports clubs introduced by Gordon Brown in 2002 and the ability of such clubs to register as charities since 2001. Indeed the taxation of sports organisations is often more complex than for business generally. There is no recognition of the value of community sport to the nation unless the sports organisation registers as a charity or CASC.

5. and 6. Specific areas for tax reform

I start from the principle that tax changes and reforms in general should be limited at present. We have too much tax legislation and if more is added the price for any more should be the removal of an equivalent amount of existing legislation. We have a multiplicity of taxes and I suspect that no-one fully understands their financial impact on business sectors whether good or bad. New legislation should be subject to more scrutiny and require justification. Whilst existing legislation is too complex and voluminous I would not make substantial changes to most of it since this would create more uncertainty for taxpayers in an uncertain economic environment.

I would however suggest 2 areas for reform; firstly Vat which I have already mentioned and secondly employment status for tax purposes. Income tax liabilities can be different for the employed and the self employed. The status distinction is unclear and determining it often causes significant worry, time and costs for sport particularly volunteer treasurers. This has been the case for decades. Government, through HMT and HMRC, should get on with consulting on its promised changes to the tax law covering employment status and complete this soon to provide more certainty.

7. The role of tax reliefs

I am in favour of targeted tax reliefs which in reality don’t seem to be in accordance with any strategic tax plan but over the years respond to political lobbying by the stronger lobbying groups. In general the reliefs to encourage small and growing businesses seem to have been of value as have those in encouraging capital investment such as the new structures and buildings allowances. Whilst I support the Creative industries Reliefs which have expanded in scope over 13 or so years I question why special recognition has been given to arts organisations which no doubt provide worthwhile benefits yet not to sport. At the community level sport provides equally valuable benefits particularly healthy and enjoyable recreation. Professional sport contributes significant amounts in taxation and like the arts entertains the nation.

Use of tax reliefs, particularly those targeted at grass roots sport would have the following effects-

i.         it would benefit young people, a group most impacted during the pandemic, in terms of both health and social inclusion, since most sports clubs are open and have a majority of young people in their membership,

ii.       by building on existing tax reliefs for giving to clubs registered as CASC’s and sports charities, better off taxpayers would contribute more in terms of patronage. This would be preferable to subjecting them to excessive levels of taxation which often never raise more in taxation.

iii.     by improving the health of those who participate in sport employee productivity will increase and the national financial burden of obesity reduced.

There is no tax help targeted at sport; indeed the opposite has been the case. Until relatively recently NGB’s were taxed on their spending on their grass roots. This expenditure is effectively sport’s “research and development” (R and D) expenditure which if it were a business expanding technical knowledge in order to be competitive it could get enhanced tax relief for that spending. The Creative Industries Relief operates in a similar way to R and D relief to provide enhanced tax relief (and tax credit repayments in some cases) for certain defined “core” expenditure.

The current regime of tax reliefs does not promote financial or economic growth in the sport sector which is important in helping Government meet its increased activity agenda. The tax system does the opposite when compared to other sectors as demonstrated by the following-

  1. When a community sports club embarks on a facility improvement programme receiving a grant from, say, Sport England, more Vat can be clawed back from the club than is received from the grant thus putting the project at risk. In many cases the club is unaware of this.
  2. No gift aid is available on junior subscriptions to a club registered as a CASC or charity unlike annual subscriptions for adults and children to charities preserving property, animals or plants such as the National Trust, London Zoo and the Eden Project. Whilst I have no problems with supporting these excellent property preservation charities the inference is that successive Governments have considered old buildings, animals and plants to be more important than the health and welfare of our children.
  3. No recognition has been given to encouraging expenditure on grass roots sport in the way that special enhanced tax reliefs have been provided to the Creative Industries and companies undertaking R and D work.
  4. The recent temporary reduction in the Vat rate from 20% to 5% for ticket sales by attractions has not been extended to sport for reasons which are unclear.

8. Areas for simplification

From a sports perspective a key area for simplification would be corporation tax as it is applied to sport particularly NGB’s and not for profit community sports clubs. Most clubs do not understand their CT obligations. Difficulties can arise when major facility improvement projects are planned and finances organised since CT liabilities can be overlooked. This is often because volunteer treasurers are not knowledgeable in taxation matters and are unaware of their obligations under an overly complex CT regime.

More generally my specific suggestion for simplification would be to restrict new legislation as described above. HMT should avoid constant tinkering to deal with perceived tax avoidance by a small percentage of taxpayers. HMRC have sufficient existing law and powers now to deal with this.

9. Windfall taxes

I have no strong views on this but would not be in favour of any tax which was introduced on profits or sales which had already taken place since these create uncertainty for businesses.

10. The balance between the taxation of various sources

I do not believe the balance generally is right. Specifically individuals are not encouraged to provide for retirement through pension contributions with the significant restriction on annual contributions and restricted accumulated fund size. The ability to withdraw the whole of a pension fund at age 55 (subject to tax after the 25% tax free commutation) can also be counterproductive since the money may be spent before it is needed in old age e.g. for residential home care. There is not enough encouragement to save particularly with the current low interest rates on bank and building society deposits.

Individuals should be encouraged to exercise more with the tax system providing incentives for doing so e.g. by employers providing tax free contributions for employees to be members of the local sports club or gym if necessary subject to a cap to limit the Exchequer cost. The tax system should recognise the benefits of healthy exercise e.g. by providing enhanced tax relief for grass roots sport expenditure.

11. Tackling reform and HMRC’s role

I do not believe that much “across the board “reform is needed. Whilst simplification is required I do not believe that this should take place in the short term. Vat reform is a longer term project. There should not be a knee jerk reaction to the funding problems created by the pandemic by turning the tax system upside down. Successive Governments seem to have been obsessed with tax avoidance in the past to the detriment of the effective operation of the UK tax system. HMRC should concentrate on tackling tax evasion and increase its taxpayer education and compliance activity under its existing powers. I would recommend that HMRC be provided with sufficient human resources to do this effectively.

The sport sector is an area for HMT encouragement; the benefits it receives are not sufficient post pandemic for it to achieve what it’s capable of. It needs a beneficial tax system based on a strategic approach from HMRC and HMT. The issues in 7 a. to d. above demonstrate the tax problems which sport can face in addition to financial issues arising from the pandemic. A good starting place would be for sport to commence a dialogue with HMRC/HMT with sport’s sponsoring department, DCMS involved to establish a co-ordinated strategy for addressing the ills in the tax system affecting sport currently. This could map out a way forward for a tax system which encourages and supports the good work sport does in the community.


(1)    Source - estimated by Sport and Recreation Alliance.

(2)    BBC Sport 19th August 2020 reporting on research by Playfinder a major national online booking service provider.

(3) Written evidence to DCMS Committee submitted by the Sport and Recreation Alliance February 2019.

(4) Written evidence to DCMS Select Committee Inquiry “Impact of COVID-19 on DCMS Sectors: First Report” - The Sport and Recreation Alliance submission May 2020.

(5) “Obesity Strategy- A case of more carrots, less hockey sticks” published on 31st July 2020 available on the SRA website www.sportandrecreation.org.uk.


August 2020