Backing a talented young athlete can feel like a personal passion project.
But what happens when your company steps in to sponsor your child’s sporting career?
This is a question we are asked more often than you might think.
The good news is that, when structured correctly, company sponsorship can indeed be an allowable expense against company profits.
(Read Time: Approx. 4 minutes)
Topics Discussed:
- When company sponsorship of a child can qualify as an allowable business expense
- A real tax tribunal case where sponsorship was successfully defended
Can a Company Sponsor a Child and Claim Tax Relief
Let us take a common scenario. You own a company.
Your child is exceptionally talented at golf, motorsport, show jumping or another competitive (and expensive!) sport.
The costs of progressing in that sport are substantial. Your company decides to sponsor your child.
The natural question follows. Can the company deduct that sponsorship from its taxable profits?
The answer is yes, provided it is done properly and is genuinely commercial in nature.
The key issue is whether the sponsorship is wholly and exclusively for the purposes of the trade. In other words, is the company receiving real commercial benefit in return?
If the arrangement is simply a disguised personal expense, it will fail.
If, however, it is structured as a genuine sponsorship agreement with clear branding and promotional value, it may succeed.
The Crown and Cushion Hotel v HMRC
A helpful illustration comes from the case of Crown and Cushion Hotel v HMRC.
In that case, the hotel business had expanded to five hotels around Silverstone and rebranded itself as Silverstonehotels.com.
The owners had a highly talented child involved in competitive motorsport racing, competing at circuits previously won by Lewis Hamilton.
The company paid in excess of £160,000 over a four-year period to sponsor their child.
This was not a quiet or informal arrangement.
In return for the sponsorship, the racing car and associated materials prominently displayed Silverstone Hotels branding.
The sponsorship was visible, public and clearly connected to the business’s marketing strategy, particularly given its proximity to the Silverstone circuit.
HMRC challenged the deduction.
However, the tribunal found that the expenditure was commercial in nature. The company received genuine advertising and promotional benefit.
As a result, the sponsorship payments were allowed as a deductible expense.
This case demonstrates that even where a child of the owners is involved, the expenditure can still qualify, provided the arrangement is properly structured and commercially justified.
What Makes Sponsorship Commercial
Although the case involved motorsport, the same principle can apply to other sports.
Golf is an obvious example, particularly where competitions attract media attention and corporate audiences.
Equestrian sports, which are often costly to participate in, may also lend themselves to structured sponsorship arrangements.
The important factor is not the sport itself; it is the commercial substance of the arrangement.
Before entering into any sponsorship agreement involving a connected party, it is essential to consider:
- The scale of the payments
- The visibility of the advertising
- The relevance to your business
- How the arrangement would appear under HMRC scrutiny
If your company sponsors a child who competes in golf, horse racing, show jumping or motorsport, there must be visible promotion of the business in return.
Logos on clothing, vehicles, websites or promotional materials are important.
The level of expenditure must also make commercial sense in the context of the business.
When structured correctly, sponsorship can form part of a wider marketing strategy.
When structured poorly, it risks being treated as a non-deductible personal expense or even as a distribution.
What Makes Sponsorship Commercial
The crucial point is evidence.
For a sponsorship payment to be allowable, there should be:
- A formal sponsorship agreement
- Clear branding and advertising rights
- Demonstrable commercial benefit
- Evidence that the expense is not excessive compared to the marketing value received
If HMRC were to review the position, you must be able to demonstrate that the decision was taken for commercial reasons and that the company genuinely benefited.
Summary
Company sponsorship of a child’s sporting career can be an allowable expense against company profits, but only where it is properly structured and commercially justified.
The decision in Crown and Cushion Hotel v HMRC shows that even substantial sums can be successfully defended where there is real advertising value and genuine business benefit.
If you are considering sponsoring your child or any connected individual through your company, do not leave it to chance. The tax treatment will depend on the structure, documentation and commercial reality of the arrangement.
If you would like us to review your proposed sponsorship or advise on whether your existing arrangement is tax efficient and compliant, get in touch with us today.
Fill out our form here for any questions, email us at info@taxexpert.co.uk, or message us on our WhatsApp for out of office hours.
Kind regards,
Ilyas Patel
