Sponsorships and donations

Treasurers need to be cautious when using the word ‘sponsorship’ and ‘donation’, for sponsorship incurs VAT, whereas a donation does not.

Sponsorship 

The term commonly used for financial support given by businesses or members of the general public. With commercial sponsorship, the sponsor normally receives benefit of some kind in return. For example, the contributor’s name or trading style may be highlighted in a way that results in a benefit, such as a ‘free’ advertising slot in the programme or advertising at the venue of the occasion. It is crucial to determine whether you are producing any benefit of commercial value in return for the sponsorship income. If you are, then you are making a taxable supply.

Donation 

Sometimes loosely described as ‘sponsorship’. A true donation is a payment, which secures nothing for the donor except a letter of thanks and possibly a simple once listing the group annual report or a listing as a contributor in a programme – and whose amount, timing and regularity is entirely at the donor’s discretion. Care is needed, however, for although a donation does not incur VAT, the items on which it is expended may do so.