Sponsorship / donations from Ltd Co

[MrLoveBucket]

Was just chatting to my accountant about this and thought it might be useful info for some others on here too (although this may be an unusually altruistic topic for this forum...)

My kids both play for the local rugby club and I want to make a donation from my Ltd Co to the club. The club is not a registered charity.

Two options for this are:

1) Sponsorship as an advertising cost. If you could justify to HMRC (in the event of an investigation) that having your company name emblazoned across club literature/ internet sites / balls / kit etc would bring in x amount of business based on y amount of outlay then this can be put through your business accounts as advertising spend. This would be an allowable expense from a corporation tax point of view.

2) If you couldn't justify it as above, then it's just a 'sundry' item which wouldn't benefit from corporation tax relief.

Of course, putting it through the business either way still avoids any personal tax liability on the amount donated.

I'm guessing the situation might be different where the beneficiary is a registered charity.

In my case I'm only talking about a reasonably small amount (£500) so it probably wouldn't attract much attention from HMRC anyway (unless they are reading this). I'm just trying to decide my risk appetite and therefore which of the above options to go with.

Any thoughts anyone?

[BrilloPad]

I am going to assume that as a PSC you are incredibly unlikely to attract any business via sponsorship of the type you suggest.

If HMRC object, they will pay you alot of extra attention. Which can lead to alot of stress. Is it really worth the risk for such a small amount?

Do it through personal - you will pay tax either way.

[Maslins]

Basic rule for an expense to be valid is that it needs to be wholly and exclusively for the benefit of the trade. The fact your two kids play for that club potentially throws doubt on that. Eg will the advertising realistically offer your business any benefit? And will your children (or indeed you personally) get any personal benefit from the sponsorship?

Being pragmatic about it, I'd suggest as long as you can demonstrate that you/your kids didn't get special treatment due to it (eg get the best seats at every game, or other free stuff), and you can demonstrate some kind of advertising was given, you should be ok.

[MrLoveBucket]

I am going to assume that as a PSC you are incredibly unlikely to attract any business via sponsorship of the type you suggest.

If HMRC object, they will pay you alot of extra attention. Which can lead to alot of stress. Is it really worth the risk for such a small amount?

Do it through personal - you will pay tax either way.

Thanks BrilloPad
Yes I'm fairy niche too so realistically generating any business from this is a pretty remote possibility.
Are you saying Option 2 is a no-no too and I should just donate from my personal salary / dividend income?

[TheCyclingProgrammer]

Basic rule for an expense to be valid is that it needs to be wholly and exclusively for the benefit of the trade.

Generally, or just for them to be tax-deductible? Businesses can pay for things that benefit them even if they don't necessarily benefit from a corporation tax reduction.

The important thing here I think, if you go for option 2, is to make sure that it couldn't be construed as benefitting you as a director personally - I'm not sure but even benefitting an immediate family member may give rise to a potential BIK.

[Maslins]

Generally, or just for them to be tax-deductible? Businesses can pay for things that benefit them even if they don't necessarily benefit from a corporation tax reduction.

The important thing here I think, if you go for option 2, is to make sure that it couldn't be construed as benefitting you as a director personally - I'm not sure but even benefitting an immediate family member may give rise to a potential BIK.

You're right.

I guess my issue is:
- if it's agreed it's not wholly and exclusively for the benefit of the trade,
- and they're not a charity, so it's not a valid charitable donation,
- and we're also arguing there's no personal benefit,
...then why would anyone give them the money?

I appreciate with personal tax rates on dividends going up, there may be a temptation for people to start paying for more things via their company, even if they potentially disallow them for corporation tax. Possibly that will be an area HMRC might start attacking, based on my 3 bullet points above. Eg if you're agreed it's not the first two, then surely you must be getting personal benefit from it, otherwise you wouldn't pay it. The only justification I can think of (which is perhaps what the OP might try to argue) is that whilst it's doesn't qualify as a charitable donation, it's still charitable. Still, if I was an aggressive tax inspector, I'd be thinking why are you gifting money to this club that your kids play at and not any other club...doesn't that demonstrate there must be some personal benefit? Or is it purely coincidence that it's the club his kids play at?

[TheCyclingProgrammer]

Still, if I was an aggressive tax inspector, I'd be thinking why are you gifting money to this club that your kids play at and not any other club...doesn't that demonstrate there must be some personal benefit? Or is it purely coincidence that it's the club his kids play at?

I agree with you.

[TheFaQQer]

A friend of mine sponsors his local cricket club. Since he started that, the number of balls that ended up in his garden dinging off his Porsche has gone down.

[WordIsBond]

The only justification I can think of (which is perhaps what the OP might try to argue) is that whilst it's doesn't qualify as a charitable donation, it's still charitable. Still, if I was an aggressive tax inspector, I'd be thinking why are you gifting money to this club that your kids play at and not any other club...doesn't that demonstrate there must be some personal benefit? Or is it purely coincidence that it's the club his kids play at?

I'd argue that any personal benefit argument is far-fetched. If my nephew goes into a charity-run drug treatment centre and I contribute to the charity because I'm grateful for what they've done for my family, and I believe in the work they do, it's still a charitable contribution. The fact that this organisation isn't a registered charity shouldn't really have any impact on the personal benefit angle.

If the kids aren't allowed to play with the club unless he makes the contribution, that's another matter. But if it is generally available to the community, and the kids have been part of it prior to this, he's not buying a personal benefit, he's supporting an organisation that he's seen doing good work in the community.

I can certainly see HMRC chasing it if he tries to claim it as a business expense. But chasing it as a BIK? If it is treated as a BIK, then it DOES become a business expense. So they'd lose the CT that he wasn't trying to claim, and gain employer NI, plus MAYBE 20% income tax (or maybe only dividend tax, if OP's salary is only £8K).

The gain would be almost nil. They'd look like the Grinch that stole Christmas, and stole it over a pittance.

[northernladuk]

I see WiBs point but a set up like that doesn't really compare with a rugby club IMO. I think the devil is in the details here. I donate to the junior section of my old rugby club. The sponsorship money is used to buy the shirts the boys play in. If that is the case then it's pushing a very fine line where he's actually buying his kids shirts but with a logo on. It's not advertising at all, everyone at the club knows.

I don't have anything to do with the junior teams, I just decided to sponsor the team I started with many years ago.

I would be willing to bet the sponsorship will affect his kids and the others in the team so far too much involvement to be pure sponsorship IMO.