BIM42555 - Specific deductions: advertising expenses: sponsorship
Sponsorship is a way for businesses to obtain the commercial benefit of bringing their name, products or services to public attention.
Sponsorship is often a form of advertising. A business tries to obtain benefits for its products, goodwill or reputation and public image by association with a popular or successful event or person.
Although often associated with sporting or cultural events, business sponsorship is not confined to those areas. For example, there is growing expenditure on ‘product placement’ - paying to ensure that a particular product or service features prominently in a successful television series or film.
Sports clubs and cultural venues offer a range of options for potential sponsors. These include:
- corporate sponsorship packages, often advertised on the club or venue website,
- sponsoring individual productions, players or races,
- long tem deals such as sponsoring a football club.
These packages may include both advertising (for example in the event’s programme, on clothing, at the venue, through to the name of the event) and hospitality. The hospitality may simply be a certain number of tickets or it may include meals or access to hospitality boxes.
Sponsorship costs are allowable in arriving at the profits of a trade or profession except where they are:
- capital expenditure,
- expenditure not made wholly and exclusively for business purposes, or
- expenditure which is specifically disallowed (such as any entertaining expenditure - see BIM45000 onwards).
Capital expenditure
Sponsorship costs may be disallowable as capital expenditure (see BIM35000 onwards) if, for example:
- a contribution to a permanent exhibition provides an enduring benefit, or
- the sponsor buys capital assets such as racehorses or cars.
Where enduring benefit takes the form of an intangible asset and the sponsor is incorporated, relief may be available under the intangible assets regime. See BIM35501. Such relief is not, however, available under the regime where the intangible asset is linked to a right over land or over a tangible, moveable property. See CIRD25030 for further guidance on this point.
Where the sponsor acquires capital assets such as horses or cars they may be able to claim capital allowances. Guidance on the type of asset that qualifies for relief can be found in the Capital Allowances Manual. Guidance on animals as plant is at CA21220.
Wholly & exclusively
Sponsorship costs are subject to the ‘wholly and exclusively’ test as with any other expenditure. This means that if there is a non-business purpose to the sponsorship (even if there is also a business purpose) no allowance is due. See BIM37050 for guidance on purpose.
The purpose or purposes of expenditure is a question of fact to be determined by the Tribunal, in cases of dispute. Further guidance on the type of evidence to look for is at BIM42565.
For an example of where the Special Commissioners found that payments of sponsorship were not paid wholly & exclusively for the purposes of the trade, see the discussion of Executive Network v O’Connor [1996] SpC56 at BIM42565.