Club racing and business expenses - Not sponsorship.
Discussion
After a few years of club racing, we were surprised at the amount of wealth, even in a relatively small club racing paddock.
It led us to form a business that provides short term funding to supercar and race car dealerships to allow them to buy stock and perhaps retail a trade in, rather than have to immediately trade it out. This escalated to the point where we source much of the stock on behalf of the dealers and also provide much of the buying customer base.
In a short space of time, the business has been very successful and generated a decent margin.
This has only been possible because we have been able to meet and form relationships with our target market at the circuit through racing ourselves.
My question is one surrounding HMRC. If we were able to demonstrate that the overwhelming majority of business is only attainable as a direct result of being able to compete alongside our target market at the track, spending time on and off the track with them and through these relationships, and that if we were not attending these race meetings, the business would fail, because there is no other simple way to source further customers and vehicles, would it be reasonable for the business to expense some of our costs?
It led us to form a business that provides short term funding to supercar and race car dealerships to allow them to buy stock and perhaps retail a trade in, rather than have to immediately trade it out. This escalated to the point where we source much of the stock on behalf of the dealers and also provide much of the buying customer base.
In a short space of time, the business has been very successful and generated a decent margin.
This has only been possible because we have been able to meet and form relationships with our target market at the circuit through racing ourselves.
My question is one surrounding HMRC. If we were able to demonstrate that the overwhelming majority of business is only attainable as a direct result of being able to compete alongside our target market at the track, spending time on and off the track with them and through these relationships, and that if we were not attending these race meetings, the business would fail, because there is no other simple way to source further customers and vehicles, would it be reasonable for the business to expense some of our costs?
To be honest I’m amazed he made it stick but have a read
https://www.casemine.com/judgement/uk/5a8ff74460d0...
https://www.casemine.com/judgement/uk/5a8ff74460d0...
Racing expenses are highly likely to face additional scrutiny due to their potentially personal nature. If you don't mind the potential audit, it is quite straightforward:
1. You would need to demonstrate a clear connection between the racing activities and the business income. It sounds like you have evidence of this connection, which is helpful.
2. You would need to separate any personal enjoyment element from the business purpose. This is often where HMRC scrutinizes such claims most heavily.
3. Documentation will be crucial - tracking meetings with clients at races, deals that originated at track events, etc.
1. You would need to demonstrate a clear connection between the racing activities and the business income. It sounds like you have evidence of this connection, which is helpful.
2. You would need to separate any personal enjoyment element from the business purpose. This is often where HMRC scrutinizes such claims most heavily.
3. Documentation will be crucial - tracking meetings with clients at races, deals that originated at track events, etc.
Eric Mc said:
There have been a number of tax cases involving sport sponsorship so it's worth looking them up.
Allowability of sports sponsorship costs is usually prohibited when it is obvious that the the payments are providing direct benefits to directors, family of directors or employees.
Appreciate that Eric, but this is different in that without it's directors being involved directly in racing, the business couldn't exist. It is possible to prove beyond any doubt that our main dealer customers could not reasonably have been sourced elsewhere and that our stock is sourced directly from this community and without access to them, this wouldn't be possible. Allowability of sports sponsorship costs is usually prohibited when it is obvious that the the payments are providing direct benefits to directors, family of directors or employees.
Getting in front of these high net worths by any other means would be out of reach and ergo the business would not be viable.
From what the OP has explained, Eric, his situation differs to sponsorship. My interpretation is that the business' viability is pegged to their presence in the paddock at the same time as their potential customers, engaging in a shared passion which enables business relationships to form where they might otherwise not. Correct me if I'm wrong.
I sort of understand why participating in on-track action may underpin this but I think you're (OP) clutching a straws when it comes to HMRC approval (though I do like the attempted train of thought).
The only work around I can think of is to class the on-track activity as a 'demonstration of goods' - the fact that the person doing the demonstrating is having a great time is of no relevance. I don't think HMRC have fully embraced a fun tax policy....yet! So, in order to demonstrate goods, costs are incurred which might be viable expenditure when it comes to VAT and Corporation Tax. There would, I presume, need to be some evidence of demonstration - such as a lap time achieved that features in sales materials.
I sort of understand why participating in on-track action may underpin this but I think you're (OP) clutching a straws when it comes to HMRC approval (though I do like the attempted train of thought).
The only work around I can think of is to class the on-track activity as a 'demonstration of goods' - the fact that the person doing the demonstrating is having a great time is of no relevance. I don't think HMRC have fully embraced a fun tax policy....yet! So, in order to demonstrate goods, costs are incurred which might be viable expenditure when it comes to VAT and Corporation Tax. There would, I presume, need to be some evidence of demonstration - such as a lap time achieved that features in sales materials.
cashmax said:
Appreciate that Eric, but this is different in that without it's directors being involved directly in racing, the business couldn't exist. It is possible to prove beyond any doubt that our main dealer customers could not reasonably have been sourced elsewhere and that our stock is sourced directly from this community and without access to them, this wouldn't be possible.
Getting in front of these high net worths by any other means would be out of reach and ergo the business would not be viable.
Playing Devil’s Advocate: why does it require the directors to be racing rather than simply (and genuinely) sponsoring another driver an being present in the paddock to give you access to that community?Getting in front of these high net worths by any other means would be out of reach and ergo the business would not be viable.
If the directors of the company are actively participating in the event (and, presumably enjoying it), HMRC will most likely that these actions indicate that the directors are obtaining personal benefit from the activity and will not be very keen to agree to it as a legitimate business cost.
Their track record regarding how sponsorship works when the directors of the company providing the funds are active in the sport (or drama etc) and themselves benefitting from it shows that they take a dim view.
By all means give it a go - but be prepared to defend your reasoning if necessary to HMRC.
Their track record regarding how sponsorship works when the directors of the company providing the funds are active in the sport (or drama etc) and themselves benefitting from it shows that they take a dim view.
By all means give it a go - but be prepared to defend your reasoning if necessary to HMRC.
M1AGM said:
I wonder how Aston Martin get away with Stroll using it to subsidise/sponsor his racing team?
Aston Martin would be the recipient of the sponsorship income, not the entity making the payments and wanting to offset the expenditure against their trading income. In fact, the sponsorship invome they receive would be normal taxable trading income for Aston Martin.If anyone wanted tax relief for the money given to Aston Martin, it would be those making the payments. What tax reliefs they may or may notr be entitled to depends very much on the tax jurisdiction they operate in.
Eric Mc said:
Aston Martin would be the recipient of the sponsorship income, not the entity making the payments and wanting to offset the expenditure against their trading income. In fact, the sponsorship invome they receive would be normal taxable trading income for Aston Martin.
If anyone wanted tax relief for the money given to Aston Martin, it would be those making the payments. What tax reliefs they may or may notr be entitled to depends very much on the tax jurisdiction they operate in.
I think you may have that the wrong way round. The recipient of the sponsorship income is the f1 team, that stroll owns.If anyone wanted tax relief for the money given to Aston Martin, it would be those making the payments. What tax reliefs they may or may notr be entitled to depends very much on the tax jurisdiction they operate in.
LooneyTunes said:
cashmax said:
Appreciate that Eric, but this is different in that without it's directors being involved directly in racing, the business couldn't exist. It is possible to prove beyond any doubt that our main dealer customers could not reasonably have been sourced elsewhere and that our stock is sourced directly from this community and without access to them, this wouldn't be possible.
Getting in front of these high net worths by any other means would be out of reach and ergo the business would not be viable.
Playing Devil’s Advocate: why does it require the directors to be racing rather than simply (and genuinely) sponsoring another driver an being present in the paddock to give you access to that community?Getting in front of these high net worths by any other means would be out of reach and ergo the business would not be viable.
Time spent in driver only areas (assembly area, park ferme, driver meetings)
Dinners and awards
Team awnings
Access to driver whatsapp groups and other shared forums
A central discussion point that builds on a shared passion.
Eric Mc said:
If the directors of the company are actively participating in the event (and, presumably enjoying it), HMRC will most likely that these actions indicate that the directors are obtaining personal benefit from the activity and will not be very keen to agree to it as a legitimate business cost.
Their track record regarding how sponsorship works when the directors of the company providing the funds are active in the sport (or drama etc) and themselves benefitting from it shows that they take a dim view.
By all means give it a go - but be prepared to defend your reasoning if necessary to HMRC.
What if we really didn't enjoy it and in fact hated every minute of it, but forced ourselves to do it for the good of the business?Their track record regarding how sponsorship works when the directors of the company providing the funds are active in the sport (or drama etc) and themselves benefitting from it shows that they take a dim view.
By all means give it a go - but be prepared to defend your reasoning if necessary to HMRC.
cashmax said:
Simply being present in the paddock doesn't allow bonding/building the same level of relationship that racing alongside potential customers does. It wouldn't allow -
Time spent in driver only areas (assembly area, park ferme, driver meetings)
Dinners and awards
Team awnings
Access to driver whatsapp groups and other shared forums
A central discussion point that builds on a shared passion.
The question being whether you can keep a straight face while reciting that argument to the tax man. Time spent in driver only areas (assembly area, park ferme, driver meetings)
Dinners and awards
Team awnings
Access to driver whatsapp groups and other shared forums
A central discussion point that builds on a shared passion.
If you can, then I would prescribe the advice given by my first accountant; better to claim it now and risk having to give some back later than not to claim it at all.
Eta: other accountants may have a different view
.cashmax said:
Simply being present in the paddock doesn't allow bonding/building the same level of relationship that racing alongside potential customers does. It wouldn't allow -
Time spent in driver only areas (assembly area, park ferme, driver meetings)
Dinners and awards
Team awnings
Access to driver whatsapp groups and other shared forums
A central discussion point that builds on a shared passion.
You can achieve all of the above through the right sponsorship package. Sorry, but this sounds like trying to find some sort of get out clause that doesn’t exist.Time spent in driver only areas (assembly area, park ferme, driver meetings)
Dinners and awards
Team awnings
Access to driver whatsapp groups and other shared forums
A central discussion point that builds on a shared passion.
Thought I would come back to this after some developments.
Completely randomly, I was in touch with a friend I knew from doing the Caterham Academy in 2017.
After a quick conversation, it turned out he had been doing almost exactly what I am proposing for the last few years.
He runs a private equity advisory and after doing the 2017 Academy, he was shocked at the level of access this gave him to individuals that he wouldn't otherwise get in front of.
As a result he went on to continue racing in 2018 and onwards. He decided it was a legitimate business expense and ran almost everything through the business (entry costs, support costs, repairs, tyres fuel - the lot).
In 2022, HMRC investigated the business (for entirely different reasons to do with capital gains treatment of something else) and the racing expenses came to light.
He was able to demonstrate deal origination as a direct result of networking at the race meetings, he was able to show a reduction in marketing / branding costs elsewhere and show revenue generation that was a net direct benefit of him participating directly in racing. He was able to back this up with a pre season business plan that showed he was actively looking for and targeting business opportunities from his fellow competitors and that he advised on two separate MBO's as a direct result of this and bid for others.
HMRC were entirely comfortable that this was a legitimate business expense and he is still racing today.
Completely randomly, I was in touch with a friend I knew from doing the Caterham Academy in 2017.
After a quick conversation, it turned out he had been doing almost exactly what I am proposing for the last few years.
He runs a private equity advisory and after doing the 2017 Academy, he was shocked at the level of access this gave him to individuals that he wouldn't otherwise get in front of.
As a result he went on to continue racing in 2018 and onwards. He decided it was a legitimate business expense and ran almost everything through the business (entry costs, support costs, repairs, tyres fuel - the lot).
In 2022, HMRC investigated the business (for entirely different reasons to do with capital gains treatment of something else) and the racing expenses came to light.
He was able to demonstrate deal origination as a direct result of networking at the race meetings, he was able to show a reduction in marketing / branding costs elsewhere and show revenue generation that was a net direct benefit of him participating directly in racing. He was able to back this up with a pre season business plan that showed he was actively looking for and targeting business opportunities from his fellow competitors and that he advised on two separate MBO's as a direct result of this and bid for others.
HMRC were entirely comfortable that this was a legitimate business expense and he is still racing today.
cashmax said:
He was able to demonstrate deal origination as a direct result of networking at the race meetings, he was able to show a reduction in marketing / branding costs elsewhere and show revenue generation that was a net direct benefit of him participating directly in racing. He was able to back this up with a pre season business plan that showed he was actively looking for and targeting business opportunities from his fellow competitors and that he advised on two separate MBO's as a direct result of this and bid for others.
HMRC were entirely comfortable that this was a legitimate business expense and he is still racing today.
That's good news for you, but please bear in mind HMRC could review the exact same circumstances again and have a different opinion. Consistency is not one of their strengths.HMRC were entirely comfortable that this was a legitimate business expense and he is still racing today.
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