Sponsorship

What it means

Sponsorship means providing money, goods or services to a person or organisation, most often a sports club, cultural event or civic association, in return for something, usually promotion. That distinguishes it from a gift, where the giver receives nothing.

A sponsorship agreement should set out precisely what the sponsor provides and what publicity it gets: a logo on kit, banners, media mentions, tickets. The extent of the consideration matters for the tax assessment and for any VAT.

Sponsorship in sport has a special regime under the Sports Act, which governs sponsorship agreements with sports organisations or athletes and the use of sponsorship money. In other areas the general rules apply.

How it works in practice

For income tax we assess whether the sponsorship payment matches the value of the publicity the company receives. If so, it is a tax-deductible promotional expense. Any part significantly exceeding the value of the publicity is in the nature of a gift and is a non-deductible expense.

For VAT, the sponsored party providing the publicity is a supplier of a service. If it is a VAT payer, it invoices the advertising with VAT, which the sponsor can deduct. When sponsoring non-profit organisations that are not VAT payers, VAT does not arise.

We advise clients to keep evidence of the publicity actually received: photos, press cuttings, screenshots. In an audit this shows that the sponsorship had consideration and was not a hidden gift.

What to watch out for

Sponsoring a club where the owner’s son plays, or an event organised by the family, will be looked at more closely by the tax office. If the publicity has no real value to the company, the expense may be treated as private.

For larger sums an oral agreement is not enough. Without a written contract and evidence of the consideration, sponsorship is hard to defend, and it is also harder to check whether the recipient used the money for the agreed purpose.