A recent case determined before the Court of Appeal found that, in its specific circumstances, a company was not allowed to claim tax relief on its sponsorship of a rugby club; the reason given was that the expense had “duality of purpose”.
In order to secure tax relief against trading profits, an expense must be incurred “wholly and exclusively” for the purpose of the trade. Here, the problem was that the rugby club was in financial difficulty and the judges held that the payments by the company were ’intended to provide financial support as well as advertising’. This decision does not mean that all sponsorship payments will be disallowed – just those made under similar circumstances.
Where a sports club is established as a Community Amateur Sports Club to benefit the local community, the Finance Act now specifically allows a deduction against company profits for these donations from 1 April 2014 onwards. This tax relief is in line with relief for corporate donations to charities.