Sponsorship is a means of advertising or promoting your business and sponsorship payments will be tax-deductible if they can be shown to have a commercial motive and are incurred wholly and exclusively for the trade.
To be tax-deductible, you have to be able to quantify why the payment has benefitted the business. You should be certain that the sponsorship has promoted the business and that the purpose was wholly and exclusively business-related.
Sponsorship costs may be disallowed where:
- The main beneficiary of the sponsorship is the relative of the sponsor.
- The sponsorship benefits the hobby or interest of the business owner or company director.
- The sponsorship includes hospitality which might be disallowed as business entertaining.
- There is little evidence of benefit to the business.
HMRC will often challenge sponsorship payments so it is advisable to assess the benefit to the business and document the commercial benefits.
It is advisable to have a written sponsorship agreement in place setting out the value of the sponsorship, detailing what the sponsor will receive from the payment and the duration of the sponsorship package.
Any further evidence of benefit to the business such as advertising boards at a venue, event literature showing the business log will help justify the commercial benefit, as will any analysis of trading benefits such as several enquiries generated from the sponsorship.
We can advise on the likelihood of proposed sponsorship payments qualifying for tax relief.