As a business owner you no doubt receive requests from local schools, community clubs and charities to sponsor events, donate equipment or make financial contributions.
These are all great ways to give back to the community and raise the profile of your brand, but you may be hesitant if you don’t know what the VAT implications are.
When it comes to VAT, goods and services are divided into different categories which determine whether VAT will be charged.
Let’s have a look at them:
If you want to make a cash donation from your business you don’t need to worry about VAT.
Cash donations are outside the scope of VAT provided that they are freely given, with nothing supplied in return.
If you decide to enter into a formal sponsorship agreement with a club you may be making taxable supplies.
Sponsorship is subject to VAT because the club you’re sponsoring is obliged to provide you with a significant benefit in return for your support and the transaction is therefore regarded as a business activity.
These ‘significant benefits’ could include:
- Naming an event after your company
- Participating in your promotional or advertising activities
- Allowing you to use their name or logo
- Giving free or reduced price tickets.
For the most part, when a business makes a gift, it counts as a supply for VAT purposes.
This means you can reclaim the VAT on the cost of the item(s) but you must account for the same value. Therefore, the VAT position is neutral.
There are exceptions to the rule, however.
If it’s a non business gift (i.e. a personal one which your business is simply paying for) you can’t reclaim the purchase VAT but you don’t need to account for VAT when you make the gift.
For example, let’s say you want your company to donate kit to your son’s football club.
The company buys the kit and gives it to each team member.
There’s no business motive for buying the kit and it won’t be used for a business purpose. So you can ignore VAT altogether!
VAT saving tip
It’s possible to give away goods and reclaim the purchase VAT while accounting for little or no VAT when you pass them on and you do this by turning the non-business gift into a business one. That means turning it into an advertising expense.
To qualify as advertising, print your company logo on the kit so it’s clearly visible. This is a business expense on which VAT is reclaimable.
We can help
For more top VAT tips and advice on gifts, donations and club sponsorship call Aspirations Accountancy on 01634 298238, or email firstname.lastname@example.org