How VAT applies if you give or get sponsorship.
This notice cancels and replaces Notice 701/41 (July 1995). Details of any changes to the previous version can be found in paragraph 1.1 of this notice.
1.1 Information in this notice
This notice explains how VAT applies if you give or receive sponsorship. It has been restructured and rewritten but the technical content has not changed from the July 1995 edition.
A person who gets sponsorship will normally be making a supply to the sponsor. This means that even if the other taxable supplies you make would otherwise be below the VAT registration limits, you may become liable to register because of your sponsorship income. If you are not already registered for VAT you should read Notice 700/1: should I be registered for VAT. You may also be making taxable supplies if you’re a sponsor giving sponsorship in the form of goods or services rather than by payment of a sum of money.
1.2 Definition of sponsorship
Sponsorship is a common feature of artistic, sporting, educational and charitable activities. But it is not restricted to these areas and it can involve payment in the form of goods and services as well as money. The payments may also be described as something else, for example as a donation.
2.1 When you’re making taxable supplies if you get sponsorship
Where you get sponsorship or some other form of support you’ll normally be making taxable supplies if, in return, you’re obliged to provide the sponsor with a significant benefit. Typically this might include any of the following:
- naming an event after the sponsor
- displaying the sponsor’s company logo or trading name
- participating in the sponsors promotional or advertising activities
- allowing the sponsor to use your name or logo
- giving free or reduced price tickets
- allowing access to special events such as premieres or gala evenings
- providing entertainment or hospitality facilities
- giving the sponsor exclusive or priority booking rights
This list is not exhaustive and there are many other situations where your sponsor may be getting tangible benefits. What matters is that the agreement or understanding you have with your sponsor requires you to do something in return.
2.2 Types of support that are not liable to VAT
You may receive financial or other support in the form of donations or gifts. As long as they’re freely given and secure nothing in return for the donor they’re outside the scope of VAT. A taxable supply is not created where you provide an insignificant benefit such as a minor acknowledgement of the source of the support. Examples of this can include any of the following:
- giving a flag or sticker
- naming the donor in a list of supporters in a programme or on a notice
- naming a building or university chair after the donor
- putting the donor’s name on the back of a seat in a theatre
2.3 Mixed sponsorship and donation
As long as it’s entirely separate from your sponsorship agreement, you are not required to account for VAT on any donation or gift (of the kind described in paragraph 2.2) you might also get from a sponsor. But, it must be clear that any benefits your sponsor gets are not conditional on making the donation or gift.
2.4 When you make taxable supplies if you sponsor somebody
You may be making taxable supplies if you provide sponsorship in the form of goods or services rather than in money.
|If you provide||Then|
|Goods or services to somebody who, in return, is making a taxable supply to you (see paragraph 2.1).||You’re making a taxable supply of those goods or services.|
|Goods to somebody as a gift or donation (see paragraph 2.2).||You may be liable to account for VAT under the business gift rules. For further information on business gifts see Business promotions and VAT (Notice 700/7).|
|Services to somebody as a gift or donation (see paragraph 2.2).||No VAT is due.|
3. Accounting for VAT
3.1 Work out the value of the sponsorship you get
If you make taxable supplies in return for sponsorship you must account for VAT on a value that covers everything you get under the sponsorship agreement. If you agree the amount of sponsorship without allowing for VAT you must treat the amount received as VAT inclusive.
You may exclude from the value any additional payment from your sponsor that may be treated as a non-taxable donation (see paragraph 2.3).
You should consider the guidance on valuation in the VAT guide (Notice 700) where you supply goods or services in return for non-monetary consideration in the form of the benefits referred to in paragraph 2.1.
3.2 Special rules for charities
If you’re a charity making supplies to sponsors as part of a fund raising event your supplies may be exempt. For further information about this please see charity fundraising events: exemptions. There’s also guidance about donations of goods to charities in How VAT affects charities (Notice 701/1).
3.3 Sponsors that are not in the UK
If you make supplies of advertising services and publicity to overseas sponsors, your services may be outside the scope of UK VAT. You can find more about this in VAT Notice 741A: place of supply of services.
3.4 Issuing a VAT invoice
You must issue a sponsor with a VAT invoice for your supplies if the sponsor is registered for VAT. A sponsor who provides sponsorship in the form of taxable supplies of goods or services is also required to issue a VAT invoice.
4. Sponsored prizes for competitions
4.1 If you receive prizes to use in competitions
|If you receive goods or services to be given away as prizes and||then you are|
|are obliged to promote or provide advertising for the donor||making a taxable supply of services to the donor for non-monetary consideration. You’ll find guidance on valuing this supply in VAT guide (Notice 700).|
|apart from any general understanding that the donor might benefit from the publicity, you are not obliged actively to promote or advertise the donor||not making a taxable supply.|
4.2 Providing prizes for a competition
Generally you should follow the guidance in paragraph 2.4 to decide whether you’re making taxable supplies. But if you donate a holiday, the special rules of the Tour Operators Margin Scheme may apply. Further guidance on the scheme is in Notice 709/5: tour operators margin scheme.
If you do not receive a supply in return for the prizes you give, you may be unable to recover tax on the prize if it falls within the business entertainment provisions. You can find further guidance on these provisions in Notice 700/65: business entertainment.
Specific guidance on the tax value of goods you provide as prizes in return for advertising or promotion services is given in Business promotions and VAT(Notice 700/7).
4.3 Claiming input tax on the prizes you receive for competitions
If you receive prizes for your competition in the form of goods or services in return for supplies of advertising or publicity you’re making to the donor (see paragraph 4.1) then, in general, you can claim input tax on the prizes (subject to the normal rules).
But if the prize is a holiday or day trip you will not be able to claim any input tax. Also some other prizes may be regarded as business entertainment on which you will not be able to claim any input tax. You can find further guidance on business entertainment in Notice 700/65: business entertainment
If you receive prizes for your competition in the form of goods or services and you are not obliged to provide anything to the donor in return (see paragraph 4.1), there will be no input tax to claim.
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