Income Tax/Company Sponsorship

SamanthaD

My daughter (aged 7) is a promising amateur athlete and is now at the stage where she requires quite a lot of private coaching which is going to cost about £5000 a year.

My husband, a higher rate tax payer, has spoken to his company and suggested rather than a pay rise (if he was to get one!) this year would they consider sponsoring my daughters coaching directly as obviously if we had to pay the equivalent amount for her coaching fees from his own wages he would need a much larger pay rise to cover it as tax/NI etc. would have to be deducted.

The question I have is we see this as a win win situation, my daughter gets her coaching, the company pays out less and in return becomes associated with nurturing young athletes etc. But, is this allowed?, would he have to declare it and if so where, and would his company get a tax break for the sponsorship? (so he can sell it to them more!)

Samantha

Elaine_Wilson

This is a very tricky area. There are two aspects to consider.

First, the company's position. To obtain tax relief on the payment the company will have to prove there is a commercial purpose to the sponsorship. Assuming your husband is not in a position to control the company I do not think this will be a problem. You might wish to read the Revenue manuals (click here) which go into more detail about this.

The real stumbling block with this is that there is a distinct possibility that the amount of the sponsorship would be treated as a benefit in kind. So your husband would pay tax on the amount anyway.

There is no clear cut answer and all the facts of the situation must be examined. The nature of this payment will lie on a spectrum. At one end there will be a solid business case for why the company wishes to sponsor her. They will be able to show that through the sponsorship the company's name will be spread to potential new customers and there is every likelyhood of increased sales and profits from the exercise. The position would be reviewed regularly and the decision to continue sponsorship be made on a purely commercial basis. In this case the company will get tax relief and there should be no benefit in kind as it will be deemed to be merely incidental to the main purpose of the sponsorship.

At the other end of the spectrum the company will not be able to put forward much of a case. Its claim for relief will rest more on the fact that the sponsorship is in reality a disguised salary payment. They will still get their relief but the payment will now definitely be treated as a benefit in kind. So you will be no better off.

The actual position is likely to be somewhere between these. I think I've rambled a bit but I hope you can get the gist of what I mean.

jimmo

Sorry, but I think this really is a non starter.
From your husband’s employer’s view the salary etc he is paid is obviously a valid deduction for the employer’s purposes. Sponsoring your daughter is a bit iffy to say the least as explained by Elaine, and even if they could justify it on a commercial basis, they would certainly increase their risk of an HMRC Enquiry into the entire business.
From your husband’s point of view whilst you will find no specific reference to sponsorship in the following link I am afraid that it is absolutely certain that any sponsorship provided to your daughter will be a taxable benefit to your husband.
http://www.hmrc.gov.uk/manuals/eimanual/EIM20504.htm
Actually the measure of the taxable benefit will be the amount of the sponsorship provided plus the cost, to the employer, of providing it.