How VAT applies if you give or get sponsorship.
1.1 What this notice is about
This notice explains how VAT applies if you give or receive sponsorship. A new section on crowdfunding has been added.
This notice only deals with VAT. See Charities and tax for information on other taxes and Gift Aid.
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 payment to a charity, social project or a business for which the sponsor receives something in return. Payment may be in the form of money, goods and services (commonly referred to as ‘barter’), or a combination of money with goods and services.
Sponsorship is a common feature of artistic, sporting, educational and charitable activities, but it is not restricted to these areas.
The payments may also be described as something else, for example, as a donation. Sponsorship is similar to a donation in that persons sponsoring a charity or social project are usually motivated by a wish to support it. But where the sponsor also receives something in return, this may have VAT implications.
2.1 When you’re making taxable supplies if you get sponsorship
Where you get sponsorship or some other form of support you will 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 (where to do so gives the sponsor a business benefit, such as promoting their brand), this will not generally apply to naming an event after a private individual or entities
- displaying the sponsor’s company logo or trading name – though not where that logo is purely connected with a government agency or charitable foundation, and merely acknowledges generosity
- participating in the sponsor’s promotional or advertising activities
- allowing the sponsor to use your name or logo (see paragraph 2.2 for more information)
- 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 (except where HMRC is satisfied that there’s no actual benefit in accessing these rights, and that they merely secure the sponsor’s income for the charity)
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
- acknowledging the donor in a list of supporters in a programme or on a notice
- naming a building, a wing of a building, an area of a facility, a role or post in the charity (such as first violin of an orchestra), or university chair after the donor
- putting the donor’s name on the back of a seat in a theatre or on any part of the fabric for which they have paid or part paid for
- giving a certificate which acknowledges a person’s donation
- payments for ‘buy-a-brick’ campaigns or for buying clothing that supports a campaign, but cannot realistically benefit the donor
- a charity sponsoring another charity in order to merely show shared endeavour or support in a mutually charitable and collaborative area
A donor will be a person who has no, or minimal influence over what’s being provided and cannot insist on receiving any acknowledgement.
Where the benefit provided in return for the payment is an exempt supply for VAT purposes, the exemption will apply and the income received will not be taxable, see paragraph 3.2.
2.3 Mixed sponsorship and donation
If a donation is made separately from your sponsorship agreement, or your sponsorship agreement document makes clear which part is payment for services and which is a donation, you do not need to account for VAT on any donation or gift of the kind described in paragraph 2.2. However, it must be clear that any benefits your sponsor receives are not conditional on the making of the donation or gift.
Read VAT Notice 701/1 How VAT affects charities, for more information specific to charities.
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:
- goods or services to somebody who, in return, is making a taxable supply to you (see paragraph 2.1), then you’re making a taxable supply of those goods or services
- goods to somebody as a gift or donation (see paragraph 2.2), then you may be liable to account for VAT under the business gift rules – for further information on business gifts see Business promotions (VAT Notice 700/7)
- services to somebody as a gift or donation (see paragraph 2.2), then 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 (VAT 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 see charity fundraising events: exemptions. There’s also guidance about donations of goods to charities in How VAT affects charities (VAT 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 Place of supply of services (VAT Notice 741A).
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:
- are obliged to promote or provide advertising for the donor, then you’re making a taxable supply of services to the donor for non-monetary consideration, you’ll find guidance on valuing this supply in VAT guide (VAT Notice 700)
- apart from any general understanding that the donor might benefit from the publicity, you’re not obliged actively to promote or advertise the donor, then you’re 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 Tour Operators Margin Scheme (VAT Notice 709/5).
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 Business entertainment (VAT Notice 700/65).
Specific guidance on the tax value of goods you provide as prizes in return for advertising or promotion services is given in Business promotions (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 and services:
- and you’re not obliged to provide anything to the donor in return (see paragraph 4.1), there will be no input tax to claim
- in return for supplies of advertising or publicity you’re making to the donor (see paragraph 4.1), then generally you can claim input tax on the prizes, subject to the normal rules, however:
- if the prize is a holiday or day trip you will not be able to claim any input tax
- some prizes may be regarded as business entertainment on which you will not be able to claim any input tax (see Business entertainment (VAT Notice 700/65))
Crowdfunding is the process of raising funds or capital for a specific project through the internet on specifically designed platforms. The VAT treatment of supplies that might potentially be made is no different to similar financing arrangements (for example, sponsorship, donations and investments) made through more traditional routes. Whether a recipient of crowdfunding is liable to charge and pay VAT depends on the facts in each case.
- where nothing is given in return for the funding, it will be treated as a donation and not liable to VAT – the position is the same where all that the funder receives is a bare acknowledgement, such as a mention in a programme or something similar
- where the funder receives goods or services that have a real value associated with them (for example, clothing, tickets, DVDs, film viewings), VAT will be due
- where the payment is for a combination of the 2 examples, if it’s clear that the donation element is optional then that part of the sponsorship can be treated as a non-taxable donation
- it might be that the funding takes the form of an investment where the funder is entitled to a financial return such as interest, dividends or profit share – in these cases, any payment due to the funder will not be liable to VAT, unless the arrangement is more by way of a royalty based on a supply of intellectual property or some other benefit – in these circumstances the ‘profit share’ is likely to be consideration for a supply, the reason why most of these arrangements are outside the scope of VAT is that the provision of capital in a business venture is not seen as a supply for VAT purposes
VAT Notice 701/49: finance has more information.
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