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11 Jan 2006, 21:24 (Ref:1499494) | #1 | ||
Racer
Join Date: Oct 2002
Posts: 155
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Sponsorship & the Tax man
If the unthinkable happens and I convince some local business' that there are marketing opportunities to be had from sponsoring a guy that never finishes a race, how do they account for their generous contribution.
I assume they will need some form of invoice to try and sneak past their accountant, but who from and what should it detail. If the invoice comes from me will it count as "earned" income and would I therefore be liable for tax on it? If I get them to pay the entry for example would they get an invoice from the organising club and would the tax man see it as an allowable marketing expense. The chances of sponsorship are slim but I'd like to be prepared for any questions. Does anyone have any experience of this? Cheers. |
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12 Jan 2006, 09:22 (Ref:1499729) | #2 | ||
Racer
Join Date: Mar 2004
Posts: 323
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I'm looking into the very same question for myself, not easy to find out either.
I'll let you know if I find anything out. In the mean time I'm sure one of the racers here will have the low down. |
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It has to start somewhere, It has to start some time. What better place than here, what better time than now. |
12 Jan 2006, 12:31 (Ref:1499870) | #3 | |
Racer
Join Date: Aug 2004
Posts: 310
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Morning.
1. I suspect that the HMRC (the Inland Revenue as was) will regard you as being self-employed, being in the business of supplying advertising etc services. You should produce an invoice for your sponsor setting out what you are supplying, for what period and so on. 2. Any receipts you are lucky enough to get will count as income of your business, but I doubt you will be showing any profits (and therefore taxable) because, if you share my experience of racing, you will have an absolute pile of expenses to set off against it. But keep a record of those expenses. There then may occur the whole question of to what extent you are racing for enjoyment or to keep the sponsors happy. Any expenses not incurred wholly and exclusively for your business will not be deductible (theoretically at all) from your receipts. In practice, I suspect that you will not find difficulty here, but you will be most unlikely to be allowed to claim your losses against your other taxable income as you might with losses on perhaps more genuine trades. 3. If your sponsorship income is more than c£60k (!), then VAT starts to raise its ugly head, but that really would be wishful thinking...... |
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12 Jan 2006, 14:21 (Ref:1499922) | #4 | ||
Rookie
Join Date: Aug 2005
Posts: 47
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3. If your sponsorship income is more than c£60k (!), then VAT starts to raise its ugly head, but that really would be wishful thinking......[/QUOTE]
True, but you can always then claim the vat back, fuel, tyres, hotel, food etc, youd be surprised how much it all adds up to!! but you would have to have a business bank account and be vat registered which isnt really a problem, as already stated, your business would be selling advertising space. |
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12 Jan 2006, 15:35 (Ref:1499940) | #5 | |
Racer
Join Date: Aug 2004
Posts: 310
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I agree with that (assuming that the sponsor can reclaim his input VAT on expenses) - in fact of course one can voluntarily register for VAT any business making taxable supplies irrespective of the level of turnover. You would not have to have a (separate) bank account. But the issue might then be to what extent HMRC agree that you truly are making taxable supplies if you are making huge VAT reclaims every month/quarter. That might be an issue I would personally wish to avoid.
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12 Jan 2006, 19:50 (Ref:1500073) | #6 | ||
Veteran
Join Date: Aug 2004
Posts: 14,699
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best thing surely is to let your sponsor pay directly for parts, petrol, entry fees etc and get the invoices made out to him so he can reclaim the vat etc. You would then be out of the picture with the taxman (legally) unless you are talking mega money here.
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You can't polish a turd but you sure can sprinkle it with glitter! |
12 Jan 2006, 20:37 (Ref:1500122) | #7 | |||
Racer
Join Date: Oct 2002
Posts: 155
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Quote:
Fuel and parts is fairly easy to justify but an invoice or 3 from the 750MC for entry fees might be harder to get past our friends at the revenue. If I raised an invoice for "Advertising" I would then have a started a "business" then I would have to justify myself to the tax man. I could see some raised eyebrows at this. I am self employed and already know from experience that the taxman doesn't like unexplained income. Is there anything to be read about it anywhere |
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12 Jan 2006, 21:38 (Ref:1500174) | #8 | |
Veteran
Join Date: Feb 2005
Posts: 6,986
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You could set up a company which would operate the racing activities. This would be in receipt of the sponsorship [its sales] and any expenses incurred in carrying out the racing activities would be its costs. Assuming nobody's employed [particularly not the driver], then surely the company will be liable for corporation tax on whatever profits it makes. I'm sure in most cases, the profit would be zero or below.
It doesn't cost a great deal to set up and run a limited company and provided turnover is below GBP60K, the dreaded VATman's not involved either. Its always best to distance yourself and your own personal tax situation from your racing [if you're lucky enough to get thousands in sponsorship]. If you accept the sponsorship cash yourself, it must be classified as additional income and reported to HM Customs and Revenue. |
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12 Jan 2006, 22:49 (Ref:1500225) | #9 | |
Racer
Join Date: Aug 2004
Posts: 310
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My advice is definately not to set yourself up as a limited company, There are far too many taxable issues which could go sour. All the benefits in kind legislation (since you or an associated person would be an actual or a shadow director), overdrawn current accounts, how to extract car from company once it is in there (you could find yourself paying tax on any increase in value of the car even tho' it is (broadly) exempt. It's a minefield. And then there's the administration, dealing with Companies House, Annual Returns, corporation tax returns, issue of employment-related securities returns etc etc.
Nope. It's a simple personal profit and loss account for me! BTW, if your sponsor pays your costs that in practice should be ok because whilst theoretically it is your income, there will be equal and opposite expenses to set off against it. Just keep the records, though. The sponsor should be ok so long as he can demonstrate that the reason why he incurred the expenditure was for (I assume) advertising reasons. Just because his 'bill' doesn't have advertising on it should not be an issue. |
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13 Jan 2006, 19:51 (Ref:1500713) | #10 | |||
Veteran
Join Date: Feb 2005
Posts: 6,986
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Quote:
o You do not need to do anything with employees [i.e. returns, benefits in kind etc...] as there won't be any... unless you're planning to set up a team of some sort. o An accountant will be able to prepare a simplified set of accounts and deal with your corporate tax return, companies house annual return etc... for around GBP250-GBP300 per year. o The car need not be owned by the company [unless you want it to specifically] and in most cases it will depreciate rather than appreciate so will definitely not attract capital gains tax. Quote:
Sorry Peter... I don't wanna sound antagonistic... I'm just trying to help people get around a clear tax issue while being able to maintain a professional and complication-free relationship with their sponsor. |
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13 Jan 2006, 20:51 (Ref:1500768) | #11 | ||
Veteran
Join Date: Oct 2003
Posts: 3,446
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I think Davyboy is correct. I have a few sponsors and they just paid the team direct last year. This year I have set up a team and also a team bank account. As long as you don't make a profit you should not have any trouble. If you made a profit and paid yourself either a wage or a dividend then you would have to pay tax. Having a racing account keeps everything out in the open and clear if the tax man does come a knocking
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13 Jan 2006, 21:32 (Ref:1500813) | #12 | ||
Racer
Join Date: Sep 2003
Posts: 449
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I am currently doing a Tax Technician's course, and I know we have discussed something simillar as the course tutor receives payments for running a website as a hobby. I will ask him about this scenario in class next week, and let you know the outcome - hopefully it will be good news!
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You never stand in the same river twice |
13 Jan 2006, 22:46 (Ref:1500877) | #13 | ||
Veteran
Join Date: Sep 2003
Posts: 4,394
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I don't know about the laws for you geezers, but down here in New Zealand, there are numerous ways to do it.
You can put all your tools and race cars and trailers/transporters into a holding company - that is, a company that owns fixed assets. That way you can claim depreciation when assets are sold out of it and VAT/GST on purchases that go into it. You would set up another company that was the operating company, with its own bank account, and this would be the day-to-day trading entity that would invoice for sponsorship, hospitality, ride days, etc that a motorsport entity may offer to sponsors, friends, supporters, and fans. It also allows you to claim expenses - business cards, mobile phone, all racing consumables, accommodation, fuel for haulage vehicle, and a whole raft of expenses. Usually this company will never make a profit and as such you will be able claim back VAT/GST on expenses as they will usually exceed income, thus allowing you to spend VAT on racing itself. Cunning indeed. Find a good accountant, and perhaps it may be worth ringing a couple of bigger teams in your area and asking who their accountant is. A few pounds of advice could bring many pounds in savings and additional racing budget. |
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Tranquillity - What happens inside Shane's race car. Chaos - What happens outside Jamie's race car. |
13 Jan 2006, 22:55 (Ref:1500885) | #14 | ||
Racer
Join Date: Oct 2002
Posts: 155
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In my case the sums are quite small so I just want to keep it simple. I think the easiest way (assuming I can find any sponsors) is to get them to pay direct for certain things, perhaps to an agreed value, like fuel or parts that can have a non specific invoice making it easier for them to slip it past their accountant.
Now all I have to do is find some sponsors, that should be easy...... |
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14 Jan 2006, 08:48 (Ref:1501034) | #15 | ||
Veteran
Join Date: Aug 2004
Posts: 14,699
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Easiest way FilW, ask them to pay you in cash!
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You can't polish a turd but you sure can sprinkle it with glitter! |
15 Jan 2006, 14:23 (Ref:1501667) | #16 | ||
Veteran
Join Date: Feb 2005
Posts: 6,986
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Quote:
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15 Jan 2006, 18:17 (Ref:1501783) | #17 | ||
Veteran
Join Date: Aug 2004
Posts: 14,699
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I was joking honest, as someone who gave up the fruitless quest for sponsorship many years ago. I just promote my own little company these days.
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You can't polish a turd but you sure can sprinkle it with glitter! |
16 Jan 2006, 19:35 (Ref:1502600) | #18 | |
Racer
Join Date: Aug 2004
Posts: 310
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The key is to keep it simple and proportionate. If it's to be serious sponsorship, then clearly a proper proposal involving lump sums is correct. But the point I was clearly making is that I don't think that Al W will be heading for trouble if he keeps his records. I would think that RedRacer has the right idea. Keep well clear of companies and keep a record of income and expenses. Just Do It seems to have an ideal system for Williams!
I don't know about Tax Technicians (well, I do actually and they are good - I sit on their Council), but I do know a bit about tax. I head up the tax practice of a City practice....... |
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22 Jan 2006, 13:04 (Ref:1506593) | #19 | ||
Racer
Join Date: Sep 2003
Posts: 449
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I asked my lecturer about this subject. His response was any sponsorship income contributes towards your costs, and probably won't exceed your total expenses. If your racing is just a hobby, and therefore is an activity not undertaken with a view to a profit, there is no tax liability.
He did suggest that you contact Her Majesty's Revenue and Customs and get this in writing however. Hope this helps. |
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You never stand in the same river twice |
22 Jan 2006, 13:15 (Ref:1506603) | #20 | ||
The Honourable Mallett
20KPINAL
Join Date: Feb 1999
Posts: 37,626
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We used to do it thus:
All entries woukld be paid by the sponsor directly. Fuel, tyres etc. would be bought as and when required by the sponsor. All I did was provide the car and decals. But as has been said, if you are lucky enough then open a separate account and keep all receipts and records. |
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I've decided to stop reaching out to people. I'm just going to contact them instead. |
22 Jan 2006, 20:44 (Ref:1506917) | #21 | ||
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Join Date: Aug 2004
Posts: 14,699
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Thats what I was getting at Peter, seems logical to me and why can't the sponsor claim for the entry fees on his advertising budget, I see no problem with that.
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You can't polish a turd but you sure can sprinkle it with glitter! |
21 Feb 2006, 00:00 (Ref:1527530) | #22 | |||
Rookie
Join Date: Jul 2004
Posts: 34
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Quote:
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21 Feb 2006, 08:40 (Ref:1527733) | #23 | ||
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Join Date: Aug 2004
Posts: 14,699
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Then what hapens when said Taxman asks them to substansiate their losses and also asks the simple question, how do they survive day to day, how do they pay there rent or mortgage for example or do they go on the dole to ligitimise that? As someone who has been selfemployed for nearly 40 years I think they will open a hornets nest if they ever get investigated.
May get away with it once short term but I would wait for a very heavy weight to fall from above in the not too distant future. Also as the taxman's money comes from us tax payers I don't really like the idea of paying for someone else's hobby as I have enough trouble paying for my own! :-) |
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You can't polish a turd but you sure can sprinkle it with glitter! |
21 Feb 2006, 09:11 (Ref:1527772) | #24 | ||
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Quote:
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22 Feb 2006, 23:36 (Ref:1529445) | #25 | |
Racer
Join Date: Aug 2004
Posts: 310
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In order to claim 'sideways relief' against other income, the loss-making business must be carried on a commercial basis and with a view to the realisation of profits. Onus of proof (as usual) is on the taxpayer. Claims made which knowingly do not pass this test are fraudulent.
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