Motorsport sponsorship and taxation
Discussion
I am currently talking to a firm that are interested in sponsoring me. However they would be even more interested if in real terms it wasn't going to cost them anything. I have heard from various sources that sponsorship can be deducted from a companies tax bill, is this true? Is there anything complicated about the process, or is it as simple as it sounds?
If the whole process is a dodge, please let me know and I will remove this post.
If the whole process is a dodge, please let me know and I will remove this post.
Essentially, sponsorship is promotional expenditure. Therefore, it is legitimate for companies to sponsor you if they will (or think they will) gain a commercial advantage from doing so.
Obviously this money comes off their bottom line - therefore they make less profit (until their association with you pushes them to the top of the Fortune 500 list), and so pay less corporation tax. Also, if it reduces Bonuses to the directors, then tbey too pay less income tax (as their income has gone down).
Therefore, it will cost the company to sponsor you, but if it is a privately owned concern, then the cost to the owners is significantly less than the amount that they hand over.
Hope this makes sense (or is in any way correct)
.
Rich
Obviously this money comes off their bottom line - therefore they make less profit (until their association with you pushes them to the top of the Fortune 500 list), and so pay less corporation tax. Also, if it reduces Bonuses to the directors, then tbey too pay less income tax (as their income has gone down).
Therefore, it will cost the company to sponsor you, but if it is a privately owned concern, then the cost to the owners is significantly less than the amount that they hand over.
Hope this makes sense (or is in any way correct)
. Rich
Even if the sponsor is not a limited company, the same principles apply. A sole trader or a partnership can also legitimately deduct advertising/promotion expenditure against its business profits, thereby reducing, in this case, the individuals' personal self assessment tax liabilities.
Obviously, as far as the business is concerned, the expenditure has to be incurred "wholly and exclusively" for the purpose of their trade. Normally, the Inland Revenue have no problems with genuine advertising or promotion. Where they get concerned is when the expenditure seems excessive or they feel it contains too much in the way of "entertaining", which is specifically NOT allowed for tax purposes. They also will disallow any expenditure where they think that maybe a director of the company (or partner in the business or the proprietor) may be attempting to push through as business expenditure costs incurred for the furtherance of a personal hobby.
Otherwise, no problems - best of luck if you can find any sponsors.
>> Edited by Eric Mc on Tuesday 6th April 12:17
Obviously, as far as the business is concerned, the expenditure has to be incurred "wholly and exclusively" for the purpose of their trade. Normally, the Inland Revenue have no problems with genuine advertising or promotion. Where they get concerned is when the expenditure seems excessive or they feel it contains too much in the way of "entertaining", which is specifically NOT allowed for tax purposes. They also will disallow any expenditure where they think that maybe a director of the company (or partner in the business or the proprietor) may be attempting to push through as business expenditure costs incurred for the furtherance of a personal hobby.
Otherwise, no problems - best of luck if you can find any sponsors.
>> Edited by Eric Mc on Tuesday 6th April 12:17
Am I understanding this correctly?
The company will pay for the sponsorship out of its profits, thus marginally reducing its tax bill. The sponsorship is however still costing the company.
Or
The company pays for the sponsorship from funds that would otherwise go towards its tax bill? Thus effectively costing the company nothing?
I need to be able to present things so that they sound extremely attracitve to my prospective sponsor. Currently I think I am more confused than anything.
The company will pay for the sponsorship out of its profits, thus marginally reducing its tax bill. The sponsorship is however still costing the company.
Or
The company pays for the sponsorship from funds that would otherwise go towards its tax bill? Thus effectively costing the company nothing?
I need to be able to present things so that they sound extremely attracitve to my prospective sponsor. Currently I think I am more confused than anything.
First paragraph is correct. In order to get the tax reduction, the company (business) has to spend the money - just like any other business expenses. If you are using the tax saving benefit of sponsorhip as a sales pitch, you should have a clear understanding of the tax differences bewteen dealing with a Limited Company and Sole Traders/Partnerships.
Companies pay relatively low rates of tax (compared to individuals) so, for any given level of expenditure, an individual trader/partner makes a greater tax saving than a limited company would.
Companies pay relatively low rates of tax (compared to individuals) so, for any given level of expenditure, an individual trader/partner makes a greater tax saving than a limited company would.
Eric Mc said:
They also will disallow any expenditure where they think that maybe a director of the company (or partner in the business or the proprietor) may be attempting to push through as business expenditure costs incurred for the furtherance of a personal hobby.
>> Edited by Eric Mc on Tuesday 6th April 12:17
How can this be measured as personal hobby expenses and legitimate advertising expense?
I ask this because I am planning on doing a bit of Formula Ford racing later this year and would like to have my company name all over the car so it at least looks the part even if my driving isn't up to it!
If I'm doing that, then surely the company is receiving legitimate advertising exposure and therefore a sponsorship fee of say £3k? wouldn't be unreasonable?
Perhaps if I had an independent quote for sponsoring an independant car I could use it as justification?
You could sponsor "your own" car in the sense that the cost of having decals or colour schemes changed could be claimed as part of your advertising expenditure. It's having the company paying for running costs, entry fees etc that the taxman would not be too enthusiastic about. Don't forget, when a sponsor pays out money, they are paying out money in the expectation of the benefits of advertising. It would not be expected that any officers of the company would "benefit" directly as a result of the company's expenditure.
groomi said:
If I'm doing that, then surely the company is receiving legitimate advertising exposure and therefore a sponsorship fee of say £3k? wouldn't be unreasonable?
3k sounds a bit much, how big is your current advertising budget? if its only a small percentage then you might get away with it..
You cannot say an amount of "£3,000" (or even "£20,000") is or is not OK. It all depends on the context of the business' normal advertising costs. If it normally pays around £1,000 or £2,000 a year, a sudden jump by an additional £3,000 could elicit a query from the tax man. However, if the budget was normally £30,000 per annum, then a £3,000 increase would not be as likely to generate interest from the Inland Revenue.
If the business is "investigated" by the tax authorities for other reasons, costs such as "Advertising" could be reviewed as well.
If the business is "investigated" by the tax authorities for other reasons, costs such as "Advertising" could be reviewed as well.
I think a company can pay as much or little it wants for advertising, If Malboro want to take out an add in the,local rag or Bob the builder wants to pay millions to have his phone no on the rear wing of Schumis 'rari it doesn't matter
The problem is mr verysmallcompany saying it's legitimate for him to pay £20k to advertise on a the side of a formula ford that he's driving
But then I guess it's only illegal if you get caught
The problem is mr verysmallcompany saying it's legitimate for him to pay £20k to advertise on a the side of a formula ford that he's driving
But then I guess it's only illegal if you get caught
"Only illegal if you get caught" - not on your nellie.
All tax returns are made under the "Self Assessment" system (both for companies and individuals). When you sign the tax return, you are making a LEGAL declaration that the figures contained within are true and correct. If you misdeclare any details, you are commiting a CRIMINAL offence.
In addition, with the advent of the Proceeds of Crime Act and the new regulations on money laundering, you could find yourself falling foul of anti-terrorist legislation.
IS NOW THAT SERIOUS - AND I AM NOT JOKING
All tax returns are made under the "Self Assessment" system (both for companies and individuals). When you sign the tax return, you are making a LEGAL declaration that the figures contained within are true and correct. If you misdeclare any details, you are commiting a CRIMINAL offence.
In addition, with the advent of the Proceeds of Crime Act and the new regulations on money laundering, you could find yourself falling foul of anti-terrorist legislation.
IS NOW THAT SERIOUS - AND I AM NOT JOKING
groomi said:
They also will disallow any expenditure where they think that maybe a director of the company (or partner in the business or the proprietor) may be attempting to push through as business expenditure costs incurred for the furtherance of a personal hobby.
>> Edited by Eric Mc on Tuesday 6th April 12:17
How can this be measured as personal hobby expenses and legitimate advertising expense?
I ask this because I am planning on doing a bit of Formula Ford racing later this year and would like to have my company name all over the car so it at least looks the part even if my driving isn't up to it!
If I'm doing that, then surely the company is receiving legitimate advertising exposure and therefore a sponsorship fee of say £3k? wouldn't be unreasonable?
Perhaps if I had an independent quote for sponsoring an independant car I could use it as justification?
Hi Groomi,
Which Formula ford championships do you intend to do ?
(I'm doing bits of BRSCC Midlands and BRSCC Northwest championships)
Incorrigible said:
I think a company can pay as much or little it wants for advertising, If Malboro want to take out an add in the,local rag or Bob the builder wants to pay millions to have his phone no on the rear wing of Schumis 'rari it doesn't matter
The problem is mr verysmallcompany saying it's legitimate for him to pay £20k to advertise on a the side of a formula ford that he's driving
No the problem in this case is that a company is sponsoring a director of the company, and the tax man can look upon the sponsorship as benifit in kind and hence taxable. If the same company sponsors a driver not linked to the company or its directors then thats not a problem (IMHO)
sparkey said:
Eric Mc said:
They also will disallow any expenditure where they think that maybe a director of the company (or partner in the business or the proprietor) may be attempting to push through as business expenditure costs incurred for the furtherance of a personal hobby.
>> Edited by Eric Mc on Tuesday 6th April 12:17
How can this be measured as personal hobby expenses and legitimate advertising expense?
I ask this because I am planning on doing a bit of Formula Ford racing later this year and would like to have my company name all over the car so it at least looks the part even if my driving isn't up to it!
If I'm doing that, then surely the company is receiving legitimate advertising exposure and therefore a sponsorship fee of say £3k? wouldn't be unreasonable?
Perhaps if I had an independent quote for sponsoring an independant car I could use it as justification?
Hi Groomi,
Which Formula ford championships do you intend to do ?
(I'm doing bits of BRSCC Midlands and BRSCC Northwest championships)
Hoping to do the Kent Championship as I am only 10 mins from Brands Hatch.... could probably push it there and save money on a trailer!
Thanks, I saw your other thread regarding starting Formula Ford. I've been doing it for about 3 years, doing about 6 races per season on a limited budget. It's fantastic fun and I would highly recommend it. I was able to get a car (Van Diemen RF84) + trailer + a van load of spares, wheels, tyres etc for £4k. I don't win races (yet) but I'm sure i have as much fun as those spending 5 or 10 times the amount. Running costs are very low if you want them to be. A set of tyres can last most of a season and my engine hasn't been rebuilt since I've owned it and probably for years before that but I don't seem particularly down on par with most of the field.
If you're that close to Brands it'd be a shame not to try it !
S..
If you're that close to Brands it'd be a shame not to try it !
S..
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