Small business owner asks:
I’ve been asked to sponsor my local amateur football team by buying their match kit for the season. Can I do this, and can I get tax relief on the costs?
Acumenica answers:
Many small business owners are approached by local football teams and other amateur sports organisations to provide support and sponsorship. It’s a great way to give back to the community you serve, and to raise your business profile in the local area. But as usual, you need to take a bit of care to ensure that the matter is handled correctly to avoid getting stung by HMRC.
Often, problems will arise because HMRC contest the sponsorship costs because they don’t consider the cost to pass the Wholly and Exclusively test. This is especially true if the director or business owner has a connection with the club in question, for example if he or she is a supporter, is involved with the club in a coaching or management capacity, or if a close family member plays for them.
In these circumstances, the first question you need to ask is this: “If you, or the family member were not involved, would you still sponsor the team?” If the answer is no, then you would struggle to be able to justify the expense to HMRC.
If the answer is “yes’ then you still need to justify the cost. Is there a commercial benefit to the business? Can you demonstrate this? What is the return on investment of this marketing? Did you consider other teams? Why did you choose this team over another?
You should also make sure that the paperwork is in place. There should be an invoice of course, but a Sponsorship Agreement should also be drawn up should detail the value of the sponsorship and the duration of the agreement. There should be a termination clause that allows you to cease sponsorship if you find that you are not getting the returns that you had intended. These may not always be financial, your objectives might include an increase of brand awareness, an increase in traffic to your website, or an increase in sales leads.
To sum up therefore: it is possible to sponsor a local team or sportsperson and to claim tax relief on the expense, but the arrangement should be commercial and have a demonstrable business benefit, especially if there is a personal or family connection.
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