Sponsorship – can it be zero-rated as charity advertising?
I had a ‘phone call recently from one charitable organisation that was intending to give another charitable body a grant with which to buy vehicles. The intention of the grant giving organisation was to require the recipient to put certain logos on the vehicles to indicate that they had been funded by the organisations providing the money. By putting this requirement into the contract with the recipient organisation there seemed to be a danger that this could make the transaction liable to VAT. That VAT would have to be charged by the recipient but would be unrecoverable by the giver – so either the recipient lost out by about 15% or the donor had to find another 17.5% to fund the VAT. Neither answer was particularly good.
In this instance the advice given was simply to remove the clause that imposed an obligation on the recipient to do anything in return for the grant. Most recipients would be happy to make it clear who had provided the funds for the purchase of the goods, in this case vehicles, without it being obliged to do so.
One of the potential recipients of the grant then contacted me to discuss whether the grant would, if the obligation to put the logos on the vehicles was retained, be zero-rated as paying for the supply of advertising to a charity.
Criteria for zero-rating
There are a number criteria that have to be met for charity advertising to be zero-rated. H M Revenue & Customs (HMRC) set out these criteria in the VAT Notice 700/58 which can be found on their web site in either HTML
format or
PDF
format. In summary, the criteria are:
- The advertisement has to appear in a medium that is available to the
‘public’ -
The advertisement has to occupy someone else’s space or time, i.e. the
advert cannot be on the charity’s own web site, magazine, etc.
Advertisements can appear on any medium from billboards to newspapers, beer mats to sides of vehicles, and will qualify for zero-rating provided the space or time used belongs to someone other than the charity, i.e. the charity has to pay for the space or time being used for the advertising.
Those are the criteria for advertising on its own, not part of what is more often referred to as sponsorship.
What is sponsorship?
Good question, I’m glad you asked…
Sponsorship is when one person agrees to support another either by giving goods, services and/or money. If the sponsor obliges the recipient to do something in return, e.g. name an event after the sponsor, or show the sponsor’s logo on event materials, there is a supply of services by the recipient to the sponsor. This supply is generally a taxable supply, liable to VAT at the standard rate (17.5%) for supplies within the UK. A different VAT treatment might apply if the supply is to a charity outside the UK.
Whether sponsorship can be a single supply of advertising will depend on the terms of the agreement between the parties involved. If the agreement, for example, only requires that the sponsor’s logo appears prominently on relevant event notices, leaflets, advertising, etc. then there is possibly just a single supply of advertising.
So, can advertising by a charity be zero-rated as part of a sponsorship deal?
Possibly. It all depends on the facts of the situation. HMRC might argue that just using a logo in this case was insufficient for it to be clear who was doing the advertising. Whilst it would be possible to successfully challenge HMRC’s argument the costs involved might make that action commercially unsound.
In this case I thought it was too risky for the donor organisation to have a clause obliging the recipients of the grants to put the logos on the vehicles. The risk was that one recipient might have to charge VAT at the standard rate and that would mean either the donor had to find the extra money or the recipient in effect had less to spend. The donor organisation’s aim was to have a single uniform agreement so it had to be set up in a way that minimised the risk of exceptions causing unexpected outcomes.
The best thing to do? Seek professsional advice. Give the adviser the full facts. Yes. All of them; leave nothing out. That will protect you from penalties for not taking reasonable care.
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