Are Corporate Sponsorship Deals Tax Deductible?

Corporate sport sponsorship deals have widely been seen as a good way for companies to increase their exposure whilst at the same time offering a valuable corporation tax deduction. However, a recent tax case heard by the Court of Appeal has raised serious questions about the attractiveness of these deals.

In June 2014 the Court of Appeal rejected the appeal by a Plymouth-based seafood supplier, Interfish Ltd, who argued that there should be permitted tax deductions in respect of sponsorship payments made to a local rugby club. HMRC had argued that because the payments had two purposes in terms of both increased publicity for Interfish Ltd and improving the financial position of the rugby club, that the sponsorship payments were not made ‘wholly and exclusively’ for the purpose of the trade and consequently Interfish Ltd was not allowed to claim a corporation tax deduction. This view was upheld by both the First Tier Tribunal and the Upper Tribunal before being finally confirmed by the Court of Appeal.

Interestingly, the Tribunal ruled in this case that there could be no apportionment where dual purpose sponsorship expenditure is deemed to have been made. The expenditure is either wholly allowable or wholly disallowable. However, the tax legislation does not prohibit a deduction for any expenditure that is identifiable as being wholly and exclusively for the purpose of trade. In the Interfish Ltd case, a deduction was allowed in respect of £25,000 which were identified as having being spent on advertising hoardings.

This case would appear to suggest that all sponsorship is non-deductible for tax purposes but other conflicting court decisions suggest that it is not quite that cut and dried. In a similar case, South West Communications Group was granted a tax deduction for a large sponsorship payment made to Exeter Chiefs Rugby Club and in the case of McQueen v HMRC the proprietor’s interest in rally cars was deemed to be ‘incidental’ to the purpose of promoting his business’s name when making rally driving sponsorship payments. A tax deduction for the expenditure was subsequently allowed.

So, what can you do to maximise the likelihood of securing a tax deduction for sponsorship expenditure? There are a number of things that could be advisable for you to do. Firstly, it would be a good idea to undertake a review of the anticipated business benefits that are expected in return for the sponsorship expenditure so that you can argue a business case for going ahead with the sponsorship. This review and its conclusions should be documented in board minutes. Secondly, we would recommend that there be a formal sponsorship agreement outlining the payments that are to be made and what benefits will be received in return. Care should be taken to ensure that the cost does not appear excessive in relation to the stated benefits. Finally we would recommend that the company receives proper invoices in respect of any sponsorship payments made.

If you are thinking of going down a corporate sponsorship route and feel that you would benefit from some further guidance please feel free to give us a call.

British Accountancy Awards

It is again time for entries for the British Accountancy Awards – a year seems to be go by ever so quickly! DEB Chartered Accountants , aspiring to be the leading firm of accountants in Barnsley, has been extremely successful in the last two years in getting to the finals in no less than three different award categories.

DEB director David Edwards-Brown says “It is important that we let DEB be judged by the most prominent judging panels, and against the toughest competition in the country, to see how far we have come in creating a better service for our clients. By getting to the finals of business awards, particularly the British Accountancy Awards, we gain external confirmation of excellence in what we have achieved, and the direction in which we are heading”.

In 2013 DEB was the only independent firm from Yorkshire in the North of England division of the awards. In 2014 it was Yorkshire’s sole representative in the division covering both North of England and Scotland. As a measure of the quality of the competition that DEB faced, it is worth noting that the winners of both divisions also went on to win the award for being the top firm in the whole of the UK. Whilst it was disappointing not to win the award, it was extremely pleasing to be competing at such a level, and on both occasions, to only lose out to the best firm in the country.

Last year was an extremely successful year as DEB picked up an award at the Barnsley & Rotherham Business Awards held at the Barnsley Metrodome in November. It was great to get recognition at a national level, but it was perhaps more rewarding to be successful in our home town awards. We are hoping that 2015 will be equally as good, if not better than last year.

Auto Enrolment and Workplace Pensions – Is the writing on the wall for the State Pension?

All business owners that have employees are facing the reality of having to introduce a workplace pension for their employees at a specified date called their ‘Staging Date’.  You will be excused for having the feeling that you have heard this all before.  The ill-fated Stakeholder Pensions came and went with hardly a ripple as they were largely ignored by many employees in the UK.  However, believing that workplace pensions are just more of the same is a much misguided perception.

Under the Stakeholder regime employers with over five employees had to provide access to a pension scheme in case employees wanted to participate by opting in.  Under Auto Enrolment it works the other way round.  Everyone is in, unless they opt out.  Even if employees do opt out they are automatically enrolled back into the scheme after three years.  Employers have to provide a workplace pension scheme for their employees, and deal with all the admin of running it.  Failure to do so will leave them liable to a battery of penalties.

Again, unlike with Stakeholder pensions, employers will have to contribute to the scheme:  one percent to start with, rising to three percent after three years.  The employee will contribute one percent in year one, three percent in year two, and five percent in year three.  The loss of the employer’s contribution will be make employees think twice about opting out.  Take note employers, workplace pensions are here to stay.

Whilst the implications of the first few years are known, the real question is where such arrangements are going in the future.  You cannot help but feel that the current maximum of eight percent funding will only be a starting point, and, over time, the levels of contributions for both employers and employees will increase.  Faced with the reality of an ageing population, the cost of the State Pension has become an ever-increasing strain on Government  finances.  Will there come a day when an announcement is made that workplace pensions, paid for by both the employer and their employees will replace state funded pensions entirely?  No doubt this will take time.  No Government would dare risk removing State Pensions for those who have worked all their lives in the anticipation of getting a state pension at some ever-increasing age.  However, as workplace pension percentages increase it may be the writing on the wall.  Perhaps State Pensions will become means-tested initially.  The prospect of no Government funded pension however, may arise for future generations as they start their working lives.

At this time, this is nothing more than mere speculation.  However, there will be many of you reading this who are old enough to remember Statutory Sick Pay being once paid by the Post Office.  Over time, the cost of the admin was passed on to employers, with the amounts paid out  being recoverable through the PAYE system.  The burden of the cost was initially passed on to large employers, and eventually on to all employers.  A step-by-step process has slowly but surely resulted in the Government effectively divesting the cost of, initially the administrative burden, and, ultimately, the cost of funding sick pay.

Whether or not this speculation proves to be accurate, only time will tell.  For now though, employers will have to cope with the new demands that are being placed on them.  We have been warning our clients about this oncoming issue for some time now.

The starting point for employers is to establish their Staging Date.    Watch the video below to learn how to do this:

Our second video on Auto Enrolment provides details of what needs to be done by employers prior to their Staging Date. 

As the fear factor increases there are a variety of responses being put forward by the assortment of  professionals that business owners commonly rely upon.  Some accountants and payroll providers are having nothing to do with workplace pensions, leaving their clients to deal with it themselves or look elsewhere.  Independent Financial Advisors are very much stepping into this void, and are value-pricing the provision of both the set up and the administration of their services.  Software providers have also been quick to jump on the bandwagon.  They talk up the administrative burden of Auto Enrolment and workplace pensions, and charge accordingly.

Faced with the prospect of additional and unwelcome costs where can business owners turn to?  At DEB we have sourced a low-cost solution that we can offer.  Rather than taking advantage of the situation and charging premium prices for helping businesses, we hope it will provide an opportunity for us to meet with new clients and enable us to demonstrate the many ways in which DEB Chartered Accounts can provide valuable assistance.  Please watch our latest video on Auto Enrolment.

All business owners will need help from somewhere.  If you are not getting the help that you need, we would be delighted to hear from you.  Give us a call on 01226 245824 for a free introductory meeting to discuss your needs for Auto-Enrolment and workplace pensions, or indeed, any other matters.