Daily Echo investigation: Should sportsmen still pocket a tax-free lump sum through testimonials?

The testimonial match or benefit season for footballers and cricketers is seen as the reward for sterling service over the years – a chance for supporters to show their appreciation of their hero’s efforts and for the player to pocket a tidy sum for their retirement nest egg. And all of it tax free.

Hampshire captain Jimmy Adams is the latest local sporting hero to benefit, literally from the scheme.

Adams launched his benefit season with a black-tie dinner at Southampton’s Grand Harbour Hotel on Friday.

A fans favourite and top sportsman, many will welcome the chance to pat him on the back and swell his bank account as well as the charity he has chosen to support with some of his windfall.

But at a time of austerity, when tax avoidance has become a dirty term and politicians are falling over themselves to promise to plug tax loopholes, why is it that the tax free benefit for sporting stars remains untouchable?

Should the practice now face the same tax regime as any other income? And how did it become such an accepted part of sporting life?

Whether the public will remain happy with the continued granting of tax-free lump sums to top sporting stars remains open to question.

In recent times famous celebrities such as Take That member Gary Barlow and comedian Jimmy Carr have been the subject of public anger for making use of legal tax avoidance schemes. Will sporting benefits and testimonials follow into the public’s hall of tax shame?

Gary Barlow

The practice of granting a loyal sportsman or woman a benefit year or match is a throwback to a time when sportsmen were nowhere near as well paid as they are today and often left in penury when their careers were over – many finished early by injury.

For the soccer player or cricketer who had no other trade to fall back on, it often mean’t providing enough money to buy a pub or a corner shop as a second career.

Quite why the benefit is considered tax free is complicated. As long as the testimonial or benefit is not part of a contract, Her Majesty’s Revenue and Customs consider it a gift rather than earnings and do not take their cut.

But that complicated reasoning cuts little ice with some who ask why sportsmen and women are given such a special status.

Certainly that’s the question asked by Taxpayers’ Alliance director Jonathan Isaby, who last night told the Daily Echo: “This is yet another example of how ridiculously complex our tax code has become.

Jimmy Carr

“Is it any wonder people have lost faith in the system when tax breaks and loopholes like this continue to exist? It’s time to radically simplify our tax code.

“Getting rid of tax breaks like this would of course be unpopular, but just because something is hard doesn’t make it is not worthwhile. A simpler tax code would benefit us all.”

For the politicians the problem is a thorny one to grasp. When is a good time to upset local sporting heroes?

Perhaps not in the run up to a General Election.

When pushed on the issue Liberal Democrat Eastleigh MP Mike Thornton told the paper: “It’s something that could be looked at, but it’s a difficult one – where do you draw the line?

“I wouldn’t want there to be a situation where a present to someone is being taxed, but if it is being used as a way of getting round paying tax then I would think it is something that should be looked at.”

Gosport MP Caroline Dinenage added: “I think the idea behind it was that it was almost like a retirement fund and also a way for the fans to reward someone who has given dedicated service.

“Obviously if it is in a sport where someone is earning megabucks, more in a year than most people would earn in their lifetimes, then it does begin to call that into question.”

Jimmy Adams in action

Like the testimonial matches awarded to Saints legends Matt Le Tissier, Franny Benali and Claus Lundekvam during the Noughties, Adams’ benefit is reward for the loyal service he has given his club since making his debut 13 years ago.

Indeed, it is hard to recall many more deserving beneficiaries than Adams, the homegrown stalwart who has helped Hampshire to win five trophies in the past six seasons, including promotion back to the first division of the County Championship as captain of the division two champions in September.

With an aggregate of more than 15,000 runs in all cricket, he is already one of Hampshire’s top 20 batsmen of all-time.

So as a way of showing the club’s gratitude, Hampshire’s committee decided that he should become the club’s first player to receive a beneficiary since 2011.

He will be donating some of the proceeds from his benefit to the charity Parkinsons UK.

“It’s a real privilege, not every cricketer has the chance to have a benefit and I certainly never thought it would happen when I first started out, it was the last thing on my mind,” said 34-year-old Adams, who was on the fringes of the England set-up in 2010 but has never been in the lucrative central-contract bracket.

As he approaches the autumn of his career, the soon-to-be dad-of-two is now busy preparing for several events, from a dinner with Trevor McDonald to golf days and possibly a football match against an ex-Saints XI.

Adams is grateful for the support of an independent benefit committee.

It includes former teammate Shaun Udal, who in 2002 raised £241,675, which was the highest benefit sum recorded by any Hampshire beneficiary.

Rule changes seven years ago mean we do not know how much was raised for John Crawley (2008) and Nic Pothas (2011) who no longer had to disclose their amounts.

Sportsmen’s benefits and testimonials have, in fact, long had their critics.

In 1920, the Inland Revenue challenged the £939 raised by Kent cricketer James Seymour’s benefit match against Hampshire at Canterbury (Phil Mead, Hampshire’s all-time leading run scorer, raised £1,087 that same season). The Inland Revenue lost.

Six years later, Seymour’s victory was confirmed in the House of Lords.

County cricket’s cause celebre, it set a precedent that means benefits continue to be tax-free – provided they are not part of a player’s contract but bestowed by the club, as they are seen as a gift.

As HMRC puts it: “That case established the principle that where a benefit match or benefit period is organised to demonstrate affection and regard for the personal qualities of the player, the proceeds are not earnings and are not sourced in the employment.”

Southampton Itchen MP John Denham understands the tradition of benefits better than most.

A Hampshire Cricket member who helped organise one of Adie Aymes’ benefit functions in 2000, he said: “I can remember when Ken Palmer, the umpire and former Somerset player, brought a side down to east Devon to play my local village, a game organised by my dad, as part of his benefit.

“So they’ve been around a long time.

“In those days a cricketer’s salary was only for the summer months and only just enough to live on.

“Incomes and salaries have increased over that time but it’s still the case that a cricketer’s career is relatively short and there’s a lot of goodwill for players who have given a lot to their club.”

The most raised by any county cricket beneficiary is Worcestershire legend Graeme Hick’s £345,000 in 1999.

At the other end of the scale, the legendary Hampshire bowler Harry Baldwin was fortunate to make £237, 10 shillings in 1898.

Hampshire Cricket’s honorary archivist, Dave Allen, recalled: “In those days you got a benefit match rather than a benefit season, where the buckets would go round the crowd and the beneficiary would receive a slice of the gate receipts.

“So Baldwin picked the home game against Yorkshire, the biggest match of the season.

“But it’s the only match Hampshire have ever lost in a day. After covering three days of expenses, he was left with a loss, “He only made what he did because the committee made up the difference and gave him a little more on top.”

Mick Channon had better luck when his Saints testimonial was played in front of what is believed to be a record Dell crowd, two days after the 1976 FA Cup final win against Manchester United in May 1976.

The 92-year-old former Hampshire wicketkeeper Leo Harrison still lives in the house in Mudeford built with the £3,188 proceeds of his 1957 benefit.

The great Barry Richards was the first Hampshire player to receive a five-figure sum (£21,255 in 1977) and Chris Smith (£181,679 in 1990) more than doubled the previous record, since when six-figure sums have been the norm.

It is not always players that benefit.

Tony Middleton, a former Hampshire batsman, was a coach when he received one in 2006.