Getting a tax deduction for your sponsorship

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What are the tax rules?

In order to get an expense deductible for tax it must be “wholly and exclusively” for a company’s trade.  You might think that that's a pretty clear cut and dry case then.  For example, you agree to sponsor you local football and in return you put your Company's logo on the shirts.  That's tax deductible right?  The answer is - it depends.

Recent Tax Ruling

Unfortunately a recent tax ruling disallowed 95% of such an expense.  The reason was that the MD of the Company giving the sponsorship was also the chairman of the club.  The court believed that had the MD not been the Chairman then the money would not have been given.  Therefore the sponsorship had two purposes - one to advertise the Company and the other to help the club balance its books (a purpose which would not have existed had there not been such a close tie between the MD and the Club).  As a result the wholly and exclusively test failed and the larger part of the sponsorship was disallowed.

So what part of the cost was allowed?

The Company also paid for advertising hoardings around the ground, promoting the Company's business.  The court decided that the cost could clearly be identified as solely relating to the cost of advertising hoardings  and because advertising is a legitimate business expense it was right that the Company could claim a deduction for this.

Tax Tips if you're thinking of sponsoring a Club

Tax Tip 1 - Sponsorship is safe where there are no ties between the sponsored club and your Company.

Tax Tip 2 - Although the amounts involved in the above case were significant (£1.2 million)  the principles are the same whatever size sponsorship deal you chose. In order get a tax deduction your company must get something in return for its money and it must be solely for the benefit of its business.

Tax Tip 3 - If there are ties between your Company and the Club make sure that when you agree a sponsorship deal you get the Club to put in writing what it is your sponsorship is paying for.  That could be as follows: names on shirts - £500; Company logo on tickets - £1,000; access to special events - £4,000. By doing so you will restrict the Taxman to challenging the tax deductibility of a particular element of the sponsorship, and not the sponsorship money as a whole.

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