The event attracts some of the biggest names in horse racing with elite jockeys, owners and trainers competing for prestige and substantial prize money. For many racegoers, Royal Ascot is an exciting occasion to splash some cash in the hope of high financial rewards.
Interestingly, the tax treatment between the different participants in horse racing can be very different depending on an individual’s role in the sport.
UK tax resident jockeys can be viewed as carrying out a professional activity with the intention of generating income, meaning that their earnings (like prize money or riding fees), are treated as taxable income. If riding for reward under a contract, with a genuine profit motive, then a jockey’s earnings are likely to be taxed in much the same way as any other sole trader. As such, jockeys must complete annual self-assessment returns and suffer tax on associated income such as fees for appearances, sponsorship and professional advice.
Non-UK tax resident jockeys are likely to be subject to performer withholding taxes on any performance-related earnings connected to racing in the UK tax. (See our article on Wimbledon).
The position for owners, however, can be much more complicated. Those in a syndicate may invest substantial sums into purchasing, training and maintaining horses, but the core question is whether the activity is run as a trade. Many are not treated as operating a commercial business and as such there is no relief available for these expenses. In most cases HMRC considers racehorse ownership a recreational hobby, assisting and supporting a lifestyle choice undertaken for enjoyment.
Where ownership is classed as a hobby, prize money and profits from sales of horses are exempt from income tax and CGT. If owners can prove that their activity is run as a business (having a coherent business plan, customers beyond friends and family, branding, advertising, an intention to generate profit, as examples) then, although winnings and sales profits become taxable, owners can claim relief for their expenses. They may also be able to register for VAT and recover input VAT on their costs.
This creates an interesting contrast within the racing industry. A winning jockey at Royal Ascot is likely to face an immediate tax liability on earnings, while a successful owner may not necessarily be taxed in the same way depending on how their involvement is classified.
And what about the punters? Gambling income is tax-free so those having a flutter at the races will not pay any tax on their winnings. The tax burden instead is placed on betting shops and online bookmakers who pay a 15% General Betting Duty on their profits.
As Royal Ascot returns this summer the event once again demonstrates that while backing a winner can be thrilling, understanding the tax position behind winning can sometimes be just as important.
