Generally sponsorship is subject to VAT because normally the organisation you sponsor will be making taxable supplies to you because in return for sponsorship, they are obliged to provide the sponsor with a significant benefit. Typically this might include any of the following:
- naming an event after the sponsor;
- displaying the sponsor’s company logo or trading name;
- participating in the sponsors promotional or advertising activities;
- allowing the sponsor to use your name or logo;
- giving free or reduced price tickets;
- allowing access to special events such as premieres or gala evenings;
- providing entertainment or hospitality facilities; or
- giving the sponsor exclusive or priority booking rights.
Donations and gift are not normally subject to VAT.
The rules are in HMRC Reference:Notice 701/41 (March 2002)
A business can recover input tax on their legitimate costs when it:
- promotes its business; or
- provide facilities to its staff.
When a business only makes sporting or recreational facilities available to:
- the proprietor
- the partners
- the directors of a company
- the relatives and friends of the proprietor, partners or company directors
it is unlikely that this expense can be treated as being for the purpose of the business. Therefore, the VAT incurred would not qualify as input tax.
In the case of smaller businesses there is an increased risk that the sponsorship is conducted for a private purpose so the VATman has come up with a set of tests:
VIT44300 – Specific issues: test for sporting and recreational activities
Does the proprietor, partner or director actively take part in the sport?
If the proprietor, partner or director cannot take part because of injury or business commitments is another (independent) person employed to drive?
Does a member of the proprietor, partner or director’s family actively take part in the sport?
Is there a connection between the sport and the business?
Where does the sporting activity take place?
Is there extra advertising at the racing venue or in programmes?
Is there related advertising or promotional material?
Does the business name appear on the sporting vehicle, transporter or clothing?
For companies and partnerships is there a record of a decision to use sporting facilities for advertising?
Can the business produce any evidence of research into the benefits to be gained from the advertising?
Are the benefits of the advertising monitored?
Is the car or boat an asset of the company?
What other forms of advertising are there?
Has HMRC given a ruling for direct tax purposes?
Could the business cope with an expansion of trade?