A business might want to sponsor a sporting or artistic event and claim tax relief on the sponsorship. However, to obtain a tax deduction the sponsorship deal must be structured correctly. You need to show how your business expects to benefit from the sponsorship. Make sure you record the business reasons for the sponsorship and keep any correspondence you receive from the event organiser.
There are dangers in sponsoring an organisation or activity in which you or your family are involved. In such cases HM Revenue & Customs tend to argue the sponsorship was undertaken for personal and not business reasons, in which case no tax deduction is allowed. This was shown in the case of Interfish Ltd. This company sponsored their local rugby club. Unfortunatley the companies owner, Mr Colam, was heavily involved with the rugby club.
As a sponsor you may receive ‘free’ tickets to the sponsored event as part of the sponsorship deal. If your business gives these tickets to employees the ticket value is classed as employee entertaining, which is tax deductible. However, if the free tickets are given to suppliers or customers the cost becomes a disallowable entertaining expense. So it’s essential to record what happens to any free tickets.
If you want to support a charity through sponsorship and expect nothing in return, a donation under the Gift Aid scheme may be more tax efficient for both parties.
Please contact us if you’re thinking of sponsoring a charity or event so we can make sure you get the best available tax treatment.