Business sponsorship/advertising – direct tax
The tax treatment of payments received by charities under sponsorship arrangements will depend on the nature of the arrangement. Just because a sponsor derives good publicity or public relations benefits from payments to charity, does not automatically mean that payments by the sponsor are trading income in the hands of the charity.
If the charity does not provide goods or services in return for payment, sponsorship payments will normally have the character of charitable donations rather than trading income in the charity’s hands. The fact that the business sponsor takes steps to publicise or exploit the affinity with the charity will not change the treatment of the payments in the hands of the charity, unless the charity also publicises the affinity itself.
If the charity provides some goods or services in return for the sponsorship payments, they may be treated as trading income and therefore potentially subject to tax. A mere acknowledgement of the sponsor’s contributions (i.e. a service provided by the charity) will not cause the payments to be regarded as trading income. On the other hand, however, references to a sponsor which amount to advertisements will mean the payments are trading income. HMRC regards a reference to a sponsor as an advertisement if it incorporates any of the following:
- large and prominent displays of the sponsor’s logo
- large and prominent displays of the sponsor’s corporate colours or
- a description of the sponsor’s products or services.
For example, a company name and logo inserted in the corner of a sponsored project report would not be considered to be advertising. However, if the name and logo were substantially and widely displayed throughout the report, that might constitute advertising in return for the sponsorship payment.
Other services that a charity might provide in return for sponsorship payments, which will be factors in determining whether the payments are trading income, include use of the charity’s mailing list and links to the sponsor’s sales website from the charity’s own website.
Full guidance can be found under annex iv of HMRC’s Charities guidance.
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