Many sports professionals successfully operate through a limited company, particularly when their income is primarily derived from prize winnings, appearance fees and endorsements. This structure is less common among team sport athletes, who are typically employed and subject to PAYE on their performance earnings. However, some may establish a company to receive income from “off-pitch” endorsements and sponsorship.

A sports professional resident in England receiving their income personally will be subject to personal income tax at rates of up to 45%, plus potential National Insurance contributions. In contrast, profits within a limited company are taxed at the corporate tax rate, currently up to 25%. Personal tax liabilities still arise when drawing income from the company via dividends or salary. Incorporation is therefore most effective when profits can be retained and reinvested, utilising the company as a long-term wealth management vehicle.

Additionally, limited companies offer ‘limited liability’, protecting individuals from personal responsibility for company debts and actions.

Limited companies must meet annual obligations with Companies House, including filing accounts and confirmation statements. They must also submit tax returns to HMRC and pay taxes on time, including PAYE liabilities on employee and director remuneration, and VAT, where applicable. Failure to meet these obligations can result in financial penalties and, if the company is struck off, its assets may be transferred to the Crown.

There can be serious consequences for directors of a company if they do not meet their fiduciary duties as a company director. This was highlighted in a recent investigation involving a former world darts champion, who was barred from being involved in the promotion, formation or management of a company without court approval, after his company went into liquidation with liabilities of £580,000, including unpaid taxes of more than £450,000.

While a limited company can be an effective vehicle for managing and growing wealth, its benefits rely on diligent compliance and responsible governance. The corporate veil offers protection, but it is important that the company meets its compliance obligations, and the company directors uphold their fiduciary duties.

Sports professionals considering incorporation should seek tailored advice from experienced professionals. It is not a one size fits all solution, and expert guidance can help mitigate the risk of unexpected liabilities.