B2.462 Promoting or improving the profitability of the business
Expenditure incurred with a view to promoting the sale of goods or services, such as advertising or sponsorship expenditure, is normally deductible as a revenue item if it is incurred wholly and exclusively for the purposes of the trade1. Any personal benefit derived from the activities, provided it is purely incidental to the purpose of promoting the business, does not affect deductibility2. HMRC recognises that commercial sponsorship usually involves more than simply paying over funds to the sponsored activity, and is more likely to be part of a wider marketing scheme. HMRC lists3 a number of factors that might need to be considered in deciding whether the sponsorship was paid wholly and exclusively for the purposes of the trade, largely derived from the Vodafone Cellular & Others4 case. A lack of commerciality is likely to render the expenses disallowable.
The cost of the sponsorship is not allowable in full if the sponsor receives tickets, private boxes or other benefits as part of the benefits package. HMRC is likely to seek a disallowance equal to the value of the benefits received5. Where additional events are paid for by the sponsor, such as a private dinner reception, the usual rules disallowing third party entertainment6 will apply to this expenditure.
Similarly, expenditure incurred in employing a third party to organise hospitality on behalf of the business will be treated as entertaining expenditure which must be disallowed. The expenditure incurred by the third party on the other