As you can imagine, this is a particularly ‘grey’ area of tax. To be an allowable expense, the sponsorship must be incurred ‘wholly and exclusively for the purposes of the trade’.
To try and make this as transparent and business-related as possible, you need to demonstrate that you hope the sponsorship will benefit your business. So for instance, there should be:
an agreement in place, detailing things like:
- what the team offers your business in return for the sponsorship (your name on their shirts, advertising around the pitch, attendance at their corporate events etc)
- the size of the sponsorship
- the duration of the sponsorship
- correspondence documenting the negotiation of the payments and terms
- evidence of how you found out about the opportunity to sponsor them
- evidence of your decision to choose them over the alternatives
- business plans
- details of how the sponsorship will be exploited (i.e. local media)
It’s not ideal that you had pre-existing knowledge of the team before the sponsorship or that your son plays for them. But if you can follow HMRC guidance and essentially treat the relationship, like any other business relationship, you stand a good chance of attracting tax relief against the sponsorship.
As this is such a murky area of tax legislation, please seek professional advice before entering into an agreement with the team.
If you would like to discuss this or any other accountancy or tax matter, please feel free to contact your local TaxAssist Accountant.
By Jo Nockels
Disclaimer: The information provided is based on current guidance (at date of publication) from HMRC and may be subject to change. Any advice shared here is intended to inform rather than advise. Taxpayer's circumstances do vary and if you feel that the information provided is beneficial it is important that you contact us before implementation. If you take, or do not take action as a result of reading this information, before receiving our written endorsement, we will accept no responsibility for any financial loss incurred.