V7.439 Money for sport or hobbies—private or business expense?
Many business owners have a strong interest in sport or other pursuits, and there will inevitably be occasions when they will question the possibility of linking these interests to their business activity in order to gain VAT benefits.
The HMRC approach largely revolves around applying the 'business purpose' test to the expenditure. This often means trying to determine the intention of the person at the time of incurring the expenditure. Although it is often easy to justify the 'business benefit' of an expense, this does not necessarily mean that the 'purpose' of the expenditure was for the business.
Overall, the aim of HMRC, as far as input tax on sponsorship costs is concerned, is to ensure that a business gets recovery on the legitimate costs incurred promoting the business – but avoiding the situation where recovery is given to a business in respect of its own favoured sporting or recreational facility.
For example, as explained at Example 1 at V7.436, the sole trader of a business cannot justify reclaiming input tax on his golf club membership on the basis