On 23 September, Kwasi Kwarteng announced one of the largest tax cutting packages in British political history during his short-lived tenure as the chancellor of the Exchequer.
The now former chancellor’s “plan for growth” included a range of measures to cut taxes and costs for individuals, in the hope of kickstarting the economy by encouraging people to spend their money.
Some of the most significant announcements during the mini-Budget included:
- Removing the 45p additional-rate band for Income Tax
- Cutting the basic rate of Income Tax by 1p, from 20p to 19p, from April 2023
- Scrapping the 1.25% National Insurance increase and the subsequent “Health and Social Care Levy”
- Cutting Stamp Duty Land Tax (SDLT) rates, with no tax due on the first £250,000 of a home.
With these measures in place, you may now be expecting to pay a lower amount of tax.
In fact, as a professional footballer, the scrapping of the additional-rate Income Tax band may have been particularly appealing to you, as you may well be subject to 45% tax on a portion of your earnings.
However, after receiving heavy criticism for the decision, the government has now announced that they will not be carrying out many of these changes. This includes the abolition of the additional-rate band for Income Tax and the cut in the basic rate of tax.
So, find out what the reversal of this decision might mean for you, and how you may still be able to save on your Income Tax bill moving forwards.
Removing the band might have saved you thousands of pounds a year in tax
Your rate of Income Tax is determined by your earnings, with each portion of your income subject to varying rates of tax.
The table below details the rates of Income Tax in the 2022/23 tax year:
Under the original plans, the government was going to scrap the additional-rate band for income over £150,000. That would have seen all income over £50,271 be subject to the 40% higher rate of Income Tax.
According to sports data website SQaF, the average Championship player earned around £400,000 a year in 2021/22. Assuming a player earning this did nothing to reduce their tax liability then, had the additional-rate tax band been abolished, that could have represented savings of more than £12,000 a year.
For Premier League players, savings could have been even more notable. Using data from Statista, the average annual wages of top-flight players in 2022/23 is around £2.8 million. Again assuming a player on these wages does nothing to limit their tax bill, the removal of the top rate of tax could have seen them save upwards of £100,000 a year in tax.
However, since the government has now reversed this decision, you’ll no longer benefit from these savings in the next tax year. This won’t see you pay more tax than you were already set to, but it does mean your bill will likely not shrink as much as you may have been expecting in 2023.
2 ways for you to reduce your tax bill
Even though the additional-rate band will remain at 45%, you may still be able to reduce your Income Tax bill.
Read below about two methods that could help you to limit the tax you pay.
1. Consider tax-efficient investments
Firstly, certain investments offer tax relief that could help you to recoup some of the money you’ve already paid in tax.
For example, you could consider investing through the Enterprise Investment Scheme (EIS) or in a Venture Capital Trust (VCT).
When investing through the EIS, you can receive 30% Income Tax relief on up to £1 million of investment. That means you could reduce your tax bill by up to £300,000 in a single tax year.
You can also invest a further £1 million and receive 30% tax relief if your investment is made in “knowledge intensive companies”. The criteria for this are relatively strict, so make sure the investment you’re considering is eligible before you invest further.
Growth on your EIS shares will be free from Capital Gains Tax (CGT), and you can also reinvest profits from other investments directly into EIS shares to defer the CGT bill on these assets. This means you can save on more than just your Income Tax bill with an EIS investment.
Meanwhile, with VCTs, you can receive 30% tax relief on up to £200,000 of investment, offering you up to £60,000 tax relief in a single tax year.
There’s no CGT to pay on any profits generated by your VCT shares, and any dividends these investments produce will also be tax-free.
It’s worth noting that there are other limitations involved with these investments, including rules about when you can invest and how long you must hold your investments for to be eligible for tax relief.
Additionally, as they are investments in smaller, less-established companies, they are typically more volatile and can present a greater risk of losing value than other assets.
Seek advice before investing to ensure they’re suitable for you.
2. Save and invest through ISAs
You could also consider saving and investing in ISAs throughout your career.
ISAs are considered to be “tax-efficient” as money contained within the accounts is entirely free from Income Tax and CGT. You can either save through a Cash ISA or invest in the stock market through a Stocks and Shares ISA.
You’ll have already paid tax on money that goes into your ISAs, so this method won’t save you on tax in the short term.
But crucially, your money will be free from Income Tax when you come to withdraw it down the line. That means you’ll be able to withdraw money to live on once you’ve finished your playing career without incurring a further tax bill in retirement.
You can save and/or invest up to the ISA allowance each tax year, standing at £20,000 in 2022/23.
Get in touch
Would you like to find the most appropriate ways to reduce your tax bill as a professional footballer? Please speak to us at ProSport.
Email firstname.lastname@example.org or call 01204 602909 to find out how we could help you.
The value of your investment can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance.
Enterprise Initiative Schemes (EIS) and Venture Capital Trusts (VCT) are higher-risk investments. They are typically suitable for UK-resident taxpayers who are able to tolerate increased levels of risk and are looking to invest for five years or more. Historical or current yields should not be considered a reliable indicator of future returns as they cannot be guaranteed.
Share values and income generated by the investments could go down as well as up, and you may get back less than you originally invested. These investments are highly illiquid, which means investors could find it difficult to, or be unable to, realise their shares at a value that’s close to the value of the underlying assets.
Tax levels and reliefs could change and the availability of tax reliefs will depend on individual circumstances.