I’ll sponsor you!
You may have thought of paying sponsorship money from your business to an individual perhaps or a club or competition.
Can your business get tax relief on this payment? As ever, it’s not always a straight forward ‘yes’ or ‘no’ answer but more of a ‘it depends…’
To be allowable, the payment must be wholly and exclusively for the purposes of your trade. Normally when you sponsor a person, team or event, you will be looking to use this as part of a wider marketing strategy and you will be looking for all the publicity you can get out of it. If your motives for making the payment are to increase awareness of your business or brand, then this does serve the purposes of your trade. However, if the motives are to secure some private benefit and any marketing benefits are a ‘bonus’ then it will not tick the ‘wholly and exclusively for the purposes of your trade’ box. You may receive some kind of private benefit from sponsorship that is ‘incidental’ to the sponsorship and not the reason you made the payment – this sponsorship payment would still be allowable for tax.
If you sponsor a close relative or friend, or if you have some personal involvement in the sponsored activity, then it may be harder to prove that the payment is wholly and exclusively for the purposes of your trade. If you think your sponsorship payment is allowable despite it being to a closely connected party, then keep records of the sponsorship agreement, for example :
- Details of any correspondence or contracts including negotiations over the cost
- Details of why this particular person or event was chosen to sponsor over and above any other possible candidates
- Details of how the business itself will be promoted and how an appropriate target audience will be reached through this sponsorship
- Procedures in place to review the effectiveness of the sponsorship on improving your sales and increasing your customer basis
If you are thinking of making sponsorship payments and are unsure if they will be allowable for tax purposes, please don’t hesitate to contact us on 01872 271655 or email Lydia.firstname.lastname@example.org