Motorsport & Tax
Discussion
Can someone explain the tax benefits of sponsorship to as too to reduce tax liability?
Also, I have 2 companies, 1 motorsport related, the other in construction/property (main business), can my main business pay out a large sum to the 2nd company as sponsorship or advertising instead of paying it to me as a bonus, thus saving employers NIC and employees Income tax on the sum?
Also, I have 2 companies, 1 motorsport related, the other in construction/property (main business), can my main business pay out a large sum to the 2nd company as sponsorship or advertising instead of paying it to me as a bonus, thus saving employers NIC and employees Income tax on the sum?
Your situation is a bit more complicated than if your main company was directly sponsoring you as an individual.
However, your second company is directly involved in motorsport so on the face of it, sponsorhip of the second company by the main trading company might look like a straightforward tax deductable business cost in the main company.
Howrever, there will be complications.
First of all, the money paid to the second company, whilst being tax deductable in the first company, will be taxed as income in the second company - so the overall tax savings when both companies are taken into account may be minimal.
Secondly, as you are no doubt a director/shareholder of both companies, this fact must be disclosed in the accounts of both companies and the exact nature and level of financial activity between both companies must be disclosed separately in the notes to the accounts of both companies (under Related Party Disclosure requirements).
Thirdly, if you are personally making use of the motorsport company to fund your own personal motorsport activities, then there might well be be a taxable benefit in kind arising on such costs paid by the company.
However, your second company is directly involved in motorsport so on the face of it, sponsorhip of the second company by the main trading company might look like a straightforward tax deductable business cost in the main company.
Howrever, there will be complications.
First of all, the money paid to the second company, whilst being tax deductable in the first company, will be taxed as income in the second company - so the overall tax savings when both companies are taken into account may be minimal.
Secondly, as you are no doubt a director/shareholder of both companies, this fact must be disclosed in the accounts of both companies and the exact nature and level of financial activity between both companies must be disclosed separately in the notes to the accounts of both companies (under Related Party Disclosure requirements).
Thirdly, if you are personally making use of the motorsport company to fund your own personal motorsport activities, then there might well be be a taxable benefit in kind arising on such costs paid by the company.
On the same subject.
Suppose firm X carries out work on Mr Y's racecar without charge (but labour only as Mr Y supplies his own parts).
Firm X gets to put their name on Mr Y's racecar.
Can the uncharged cost of the labour be offset against the tax of firm X?
Suppose firm X carries out work on Mr Y's racecar without charge (but labour only as Mr Y supplies his own parts).
Firm X gets to put their name on Mr Y's racecar.
Can the uncharged cost of the labour be offset against the tax of firm X?
Edited by Yob Tar on Saturday 2nd February 02:06
If Firm X uses its own staff to work on Mr Y's cars, it will have incurred the cost of labour anyway in that the individual(s) doing the work on Mr Y's car are employed by Firm X and will be paid wages by Firm X. If Firm X choses not to charge Mr Y for the work they have done then that is a commercial loss they have to weigh up against the commercial advantage of having their logo on Mr Y's car.
If Mr Y is a director or employee of Firm X a potential Benefit in Kind will arise.
If Mr Y is a director or employee of Firm X a potential Benefit in Kind will arise.
What is the consideration for the work done?
Firm X is carrying out the work but does not want to be paid in "money".
Instead, Mr Y is placing an advert for Firm X on his car.
This is what I would do.
Firm X raises an invoice for carrying out the work for Mr Y and issues it to Mr Y.
If appropriate, VAT is charged in the normal way on that invoice.
Firm X will not got any cash for this sale so, in order to clear the invoice from the Debtors Ledger, the debt needs to be written off against the firm's Profit and Loss account.
However, instead of being written off as a "Bad Debt", the debt should be charged to the "Advertising" or "Promotions" heading in the Profit and Loss account. This is because the "consideration" for doing the work for Mr X is not "cash" but the placement of an advertisment on his car.
As you can see, in this scenario ends Firm X ends up in a tax neutral position as the Income dervived from billing Mr Y will be cancelled by the charge for Advertising in the Profit and Loss account.
Firm X is carrying out the work but does not want to be paid in "money".
Instead, Mr Y is placing an advert for Firm X on his car.
This is what I would do.
Firm X raises an invoice for carrying out the work for Mr Y and issues it to Mr Y.
If appropriate, VAT is charged in the normal way on that invoice.
Firm X will not got any cash for this sale so, in order to clear the invoice from the Debtors Ledger, the debt needs to be written off against the firm's Profit and Loss account.
However, instead of being written off as a "Bad Debt", the debt should be charged to the "Advertising" or "Promotions" heading in the Profit and Loss account. This is because the "consideration" for doing the work for Mr X is not "cash" but the placement of an advertisment on his car.
As you can see, in this scenario ends Firm X ends up in a tax neutral position as the Income dervived from billing Mr Y will be cancelled by the charge for Advertising in the Profit and Loss account.
Edited by Eric Mc on Saturday 2nd February 09:41
what about if firm x pays firm y money for advertising and firm y uses the money to buy assets that allow it to carry out the advertising service it is being paid for?
Basically, i want to pay myself a bonus without paying tax or at worst at a lower level, both companies are owned by myself, what's the best way
Basically, i want to pay myself a bonus without paying tax or at worst at a lower level, both companies are owned by myself, what's the best way
Edited by taffyracer on Saturday 2nd February 11:53
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