Sponsorship; riders or sponsors please help

[millitiger]

Hi all,

Would anyone who is sponsored or who has connections with a business who sponsors a rider be able to help me with a few questions.
Or if you're just brainy and know about the below that would be great too!

Business is currently under the VAT threshold; looking into sponsoring an amateur rider/eventing team by buying equipment, paying for training etc in return for help advertising the business.

Few things;
Would the costs come out of the company's profit or turnover (thinking of the £70k vat threshold)?
Would anything paid for need to be taxable? Example, would lessons need to be with an instructor paying tax on their income?
Any other implications for the company?

Would like any pointers to websites or personal experience as I'm getting confused looking at the government website as I'm not savvy with this sort of thing!
It's a business owned by someone in my family and I'm just trying to do a bit of research for them.

Thank you

 

[HelenPassfield]

Hi. I am a director for a renewable energy company and we sponsor en event rider who also makes a significant contribution to the buisiness.
1. Sponsorship costs come out of the turnover (as with any general and/or marketing expense).
2. You can take on any expense whether taxable/VATable it just needs to be recorded as such in your company books and records.

Have you looked at http://www.hmrc.gov.uk/, it's good in ways, but you can get lost and bogged down looking for things in it.

Quite a broad subject but if you have any more specific questions happy to try and help.

 

[SpottedCat]

Also, presumably they aren't looking to sponsor you, as there are strict rules on this, and HMRC take a dim view of a company sponsoring family or even close friends - I have had a long discussion with my accountant about this, and my company cannot even buy me branded rugs/saddlecloths to wear at events, it's just not allowed.

 

[Matafleur]

Turnover is sales and will not be affected by any expenses for the purpose of the VAT threshold. Therefore any sponsorship monies paid will not help to keep you below the VAT threshold.

I'm not au fait with the tax implications of sponsorship but would agree with SC that sponsoring family can be an iffy area, particularly in the case of Sole Trader accounts.

 

[millitiger]

Not looking to sponsor me

Hi Helen, thanks for the info. I was on that link earlier but was getting more lost the more I looked into it.

Thanks matafleur- I know turnover = sales, I just wasn't sure whether sponsorship goes down as a normal business expense to be taken out before profit like wages etc

I'm not sure if perhaps this needs a trip to the accountants to really understand all of the implications.

 

[Matafleur]

Not looking to sponsor me

Hi Helen, thanks for the info. I was on that link earlier but was getting more lost the more I looked into it.

Thanks matafleur- I know turnover = sales, I just wasn't sure whether sponsorship goes down as a normal business expense to be taken out before profit like wages etc

I'm not sure if perhaps this needs a trip to the accountants to really understand all of the implications.

Sorry, I assumed you did know that but thought a post above was misleading with regard to the VAT threshold as that is calculated solely on t/o although obvs the VAT payable is calculated on sales less purchases.

In some cases sponsorship will be tax (corporation) deductible but would depend on the form of sponsorship - so names on lorries etc will be an advertising expense and will be tax deductible but anything considered an entertainment expense will not be. The following may be useful: http://www.hmrc.gov.uk/manuals/bimmanual/BIM42555.htm

I am a qualified accountant but work in industry doing commercial work so tax is not my specialty as such but the above principals are a good place to start

 

[millitiger]

Thank you, that's a really helpful link

 

[SpottedCat]

My company is an LTD and still a major no-go according to my accountant.

 

[Kelpie]

Ok, I confess, I am an accountant....

So, for example, if Rolex sponsor an event/ rider then at that level they would be doing it as a marketing/ brand awareness expense that would be deductible for tax purposes.

However, problems come in where smaller companies basically just want to fund someone's hobby and there is no real business reason to do so or, truth be told, the marketing budget would clearly be better spent elsewhere. In these cases HMRC will resist giving a tax deductible expense.

As for the recipient's position, generally the income would be taxable - the only way it wouldn't be is if they are saying their riding is simply a hobby but then you come back to the above argument of why would a business pay good money to sponsor someone's hobby?

 

[SpottedCat]

It's a really interesting area Kelpie - I could legitimately sponsor someone else at any level because several of my clients/potential clients are involved with eventing (they sponsor sections and indeed entire sections). So even sponsoring a low level amateur rider could be proven to raise my business' profile and increase brand awareness with my target market.

I still can't sponsor myself because the benefit would be seen to be directly to me and not just an incidental result of the sponsorship. There was one chap who took HMRC to court over his sponsorship of his own motor racing, and he won, he proved the benefit he got was entirely incidental. But it's hard to prove and frankly I don't want the stress of arguing the point with HMRC and the possible consequences if they rule against me!

 

[SpottedCat]

Sorry, entire competitions!

 

[millitiger]

I am pretty sure they would like it to be an amateur, mainly because we don't have any professional eventers around here who would be able to benefit the company on a local level the same way an amateur would.
Most pros spend too much time competing out of the area to be of benefit.

I'm pretty sure there are a number of amateur eventers with sponsorship or do the issues with HMRC mainly arise where the company is sponsoring with cash as opposed to company goods?
Not sure any riders would like volcanic rock or a supply of fillet steak really!

 

[popsdosh]

A company can sponsor whoever they like but ultimately HMRC decide whether they class it as a legitimate business expense or not and can be set against tax.
From an amateurs point of view picking up sponsorship can cause all sorts of complications for example Tacho laws and operator licences as even if your vehicle is not carrying advertising you are still taking payment through having sponsorship so become a business.

 

[Nightmare before Christmas]

I am looking for a sponsor! Had some weird terms and conditions including one company pretty much wanting me to be a full time sales rep in return for a discount on their product! Madness.

 

[Kelpie]

It is true, amateurs can pick up some sponsorship legitimatly, but that tends to only fly with HMRC if there is a clear business reason why they would be sponsored ... And the sponsorship must he proportional to any business benefit or other comparable means if advertising.

So if a local tack company runs a big grassroots eventers promo competition, where the winner gets certain free gear for a period of time, that is likely to fly but if the tack shop spends tens of thousands on daughter dear popping an 80 and not likely to attract much business in for the company compared to the same money spent on other advertising, the tens of thousands would not be allowable expenses.

There has in fact been a recent court case on a company sponsoring the local rugby club ... The hard advertising up, etc but the court agreed with HMRC that the payments were disproportionate and to further the interests of the owner who liked rugby, not the business interests of the company, so the cost was not allowed.

In the other had, point 2's marketing strategy and giving air jackets to many top eventers was perfect and nobody could deny that to be business driven.

It is a very subjective area in many ways tho as each case is different....

 

[Kelpie]

Sorry for typos... Damn phone...

 

[SpottedCat]

It's not as much an issue for the rider as an issue for the company. It's worth a conversation with the company accountant about how they would demonstrate that the sponsorship directly benefits the company rather than furthering the interests of any of the owners of the company.

I'll still probably get the horse some kit - but I won't be able to do so through the business.