Tax law for racing
Discussion
I own a small motor trade business. I also have an interest in racing.
I am aware that if the business sponsored a race team, HMRC is very specific that the owners of the business should not be receiving benefit from the sponsorship - the example given is that of a company director being a driver in the team. That would create a tax liability.
However, supposing my business actually went into the business of being a professional race team as one of our business interests? Now, we may be unlikely to make money, but poor commercial decisions do not in themselves create a tax liability. So in other words, company X will engage in the pursuit of racing in order to make money. Company X also buys and sells cars, and services cars. Why wouldn't you treat the costs of racing as a business expense? And, of course the income derived therein as a business income.
(Point of fact: currently we are not a LLC/LLP so there is no question of Articles being inappropriate.)
Any lawyers or tax inspectors have an opinion?
I am aware that if the business sponsored a race team, HMRC is very specific that the owners of the business should not be receiving benefit from the sponsorship - the example given is that of a company director being a driver in the team. That would create a tax liability.
However, supposing my business actually went into the business of being a professional race team as one of our business interests? Now, we may be unlikely to make money, but poor commercial decisions do not in themselves create a tax liability. So in other words, company X will engage in the pursuit of racing in order to make money. Company X also buys and sells cars, and services cars. Why wouldn't you treat the costs of racing as a business expense? And, of course the income derived therein as a business income.
(Point of fact: currently we are not a LLC/LLP so there is no question of Articles being inappropriate.)
Any lawyers or tax inspectors have an opinion?
HMRC are obiously interested in persistently loss making activities - particularly when the activity could be construed as a hobby. There have been a number of tax cases over the years where businesses have tried to "sponsor" directors or family members in sporting activities using company funds and in the vast bulk of cases, the taxpayer has lost.
Rovinghawk said:
A question rather than an answer- if your company sponsored your mate's team, could their company sponsor your team? Artificial, obviously, but within the rules?
RH
Sadly I don't have any mates who qualify - also, this is too much like pre-meditated evasion for me.RH
Trying to make money, even as a long shot, is a punt I'm happy to take, but I need a valid plan to justify it.
majordad said:
I wonder if you as owner are actually receiving a benifit, it's advertising, like as if you put an advert in the local paper. Your company is paying for an advert on a car, which you personally happen to own.
When does as sponsorshop, the fact there is an incidental benefit to the company's owners is enough to create the tax liability, notwithstanding any real marketing benefit.I'm interested in the difference between sponsoring a team, and running one.
Eric Mc said:
HMRC are obiously interested in persistently loss making activities - particularly when the activity could be construed as a hobby. There have been a number of tax cases over the years where businesses have tried to "sponsor" directors or family members in sporting activities using company funds and in the vast bulk of cases, the taxpayer has lost.
Eric, that would seem to make sense, and of course, each case is different. I would hope that if we had a real attempt to win some money and make it self-financing, coupled with the fact we are in the motor trade anyway, and do race-prep of track cars, we might have a better shot. It would be different if we sold, say, cheese, and decided to create a race team. In our case, we are advertising our very real business.
One approach might be to track all business derived through race-induced marketing. If you could show the revenue why the activity is commercially sound, that would indicate that perhaps it's being done for business reasons, not just as a disguised hobby. Letting someone else have a turn in the driver's seat as well might help. :-)
RR
If one of the participants is a director or a "connected peerson" of the company or directors/shareholders, it would take a lot of argument with HMRC to persuade them that what is going on is a legitimate trading activity being carried on with a view to making a profit.
I'm not saying it's impossible, just that HMRC have twitchy antennae for these types of activities.
And even if there was a "non-linked" third party in the cockpit from time to time. HMRC might still want to look at PAYE Benefits in Kind regarding any "benefits" accruing to the company director/connected person.
I'm not saying it's impossible, just that HMRC have twitchy antennae for these types of activities.
And even if there was a "non-linked" third party in the cockpit from time to time. HMRC might still want to look at PAYE Benefits in Kind regarding any "benefits" accruing to the company director/connected person.
There are two aspects to these types of costs -
a) can the business claim the costs (and declare the income, of course) as part of their normal business expenditure?
b) will those individuals who partake in the activity (be it motor sport, horse riding, sailing, shooting etc) be taxed under the PAYE Benefit in Kind rules?
a) can the business claim the costs (and declare the income, of course) as part of their normal business expenditure?
b) will those individuals who partake in the activity (be it motor sport, horse riding, sailing, shooting etc) be taxed under the PAYE Benefit in Kind rules?
sideways sid said:
The accountants may correct this but IIRC, HMRC may allow the costs of racing if they are:
incurred wholly in the course of business, and
if there is a reasonable expectation of eventually making a profit.
Can you look the taxman in the eye & argue those points?
THe first, certainly - we store and prepare race cars for clients anyway, so you can argue legitimate advertising.incurred wholly in the course of business, and
if there is a reasonable expectation of eventually making a profit.
Can you look the taxman in the eye & argue those points?
The second, harder, but we can certainly give chapter and verse on the ROI of the advertising side, as well as a plan to gain prize money. External sponsorshop $$$ would also help hugely, but that is v hard to get in today's climate.
It might help that in a previous life I was successful enough to win prize money racing...or not. (Shows a propensity to want to go racing!)
J
Eric Mc said:
There are two aspects to these types of costs -
a) can the business claim the costs (and declare the income, of course) as part of their normal business expenditure?
b) will those individuals who partake in the activity (be it motor sport, horse riding, sailing, shooting etc) be taxed under the PAYE Benefit in Kind rules?
a) certainly, yes.a) can the business claim the costs (and declare the income, of course) as part of their normal business expenditure?
b) will those individuals who partake in the activity (be it motor sport, horse riding, sailing, shooting etc) be taxed under the PAYE Benefit in Kind rules?
b) There's the rub...
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