Sponsorship compared with patronage

Clubs, county boards and councils often raise funds through sponsorship. It is a form of advertising and is a way for a business to obtain commercial benefits from bringing its name, products or services to the public’s attention. This support should be distinguished from patronage where typically money is donated with no or very small benefits given in return.

The tax treatment of the two types of support are quite different and sometimes when a local business or person supports the club, county board or council it may be difficult to determine which category the support falls into, particularly when the arrangements are informal.

Usually sponsorship will be subject to an agreement on what is provided and the price to be paid whereas patronage has no conditions or agreed price.

Sponsorship may be of the club or county first team shirts, its new pavilion/facilities or indeed a multitude of other things including providing in kind value.

Tax for the sponsor and club/county/council

Great care is needed with the tax treatment of sponsorship by both the sponsor and the club, county or council.

The club, county or council. will generally wish to avoid tax charges and the sponsor will want tax relief for the sponsorship. Corporation tax and VAT will need to be considered in advance of any agreement.

The club, county or councils’ taxes

Generally HMRC will argue that the club, county or council’s sponsorship income is taxable whether received in cash or in kind e.g. sports equipment.

Corporation tax: Sponsorship income is subject to corporation tax. only expenditure which is wholly and exclusively for the purposes of generating the income is deductible from the sponsorship income in the Corporation Tax calculation.

Normally the direct costs of the sponsorship are minimal but there may be significant indirect costs which HMRC will often challenge. Supporting documentation and evidence will be critical.

VAT: If the club is not required to be VAT registered then it will not have to charge VAT on its income.

However, sponsorship income will normally be subject to VAT if the club is registered for VAT purposes. The club, county or council. will need to raise a sales invoice separating out the VAT, whether the sponsorship is in cash or in kind.

If the club, county or council is charging VAT on its sponsorship income, it will be able to reclaim VAT on the direct costs of generating the sponsorship income and a proportion of overheads. The additional taxable income is likely to improve the club’s recovery of VAT which it pays on purchases. This will be the case whether the sponsorship is in cash or in kind

VAT on In-Kind Sponsorship: VAT invoices will have to be exchanged. The club, county or council will need to invoice for the value of the sponsorship in kind. The sponsor, if receiving a service in exchange e.g. advertising will need to invoice the club, county or council for the same amount.

VAT on Property related sponsorship Income: Where the sponsorship benefits relate to the use of club, county or council land it may be exempt from VAT e.g. ground perimeter advertising. In this case the club, county or council will not be able to reclaim VAT on any costs associated with this income and the VAT recovery on indirect expenditure e.g. overheads are likely to get worse since it will have more exempt income. This situation may be improved by a process known as electing to waive exemption for property or ‘opting to tax’ e.g. electing to charge VAT on rentals and other property related income. Effectively the club, county or council will chose to charge VAT on income associated with its property, in order to enable them to reclaim VAT on associated expenditure and a share of overheads.

Detailed guidance on opting to tax should be obtained from a professional.

It is essential that all sponsorship agreements have a VAT clause detailing how the fees will be dealt with for VAT purposes.

The sponsor’s tax position

The sponsor will be interested in getting tax relief for the sponsorship and recovering the VAT charged on the sponsorship fees.

For corporation and income tax purposes sponsorship costs will be allowable for the sponsor provided they satisfy the wholly and exclusively test and –

  1. it is not capital expenditure e.g. naming rights for the facilities for an extended period, and
  2. it is expenditure which is not specifically disallowed e.g. entertaining.

The deductibility of the costs will be determined by HMRC looking at the facts and circumstances of each case and the supporting documentation and evidence will be very important. There may very well be a non-business purpose where a relative or close friend is involved in or the business proprietor or controlling director is involved in the sponsored activity. Thus where the sponsor’s business is run by the club or countys’ Chairperson, HMRC is likely to look closely at the deductibility of the cost.

The sponsor will also be concerned with the recovery of the VAT charged on the sponsorship fees. Where the sponsor’s business income is fully subject to VAT at the normal rates, the VAT charged on sponsorship fees by the club, county or council can be offset in the sponsor’s VAT return, subject to it not relating to disallowable expenditure e.g. entertaining. Where this is not the case because it has exempt income, part or all of the VAT may not be recoverable on the same basis as for the club, county or council itself. Thus if the sponsor is a financial institution such as a bank or building society with no income subject to VAT none of the VAT charged by the club, county or council will be recovered.


Generally where patronage is provided there is no tax charge on the cash gift to the club, county or council, neither is there any relief for the donor.

The exceptions to this rule are where the club, county or council is a charity in which event tax relief is available for both individual (under gift aid) and business cash gifts and also where the club is a CASC tax relief is available for cash gifts by individuals using gift aid.

In the case of individuals giving to either a charitable club or a CASC, a tax rebate of 25% of the amount of the gift will be paid to the club, county or council by HMRC.

General Point

This is a difficult area where club, county or councils’ frequently get the tax position wrong. Professional advice will be helpful where the sponsorship provides substantial value.