Sponsorship can be a brilliant way to get your business name out there, whether it's sponsoring a local sports club, an event, or even an up and coming athlete. But when it comes to your tax return, you might be wondering: is sponsorship tax deductible? The short answer is yes, but only if you follow the rules carefully.

In this guide, we explain how sponsorship works for tax, what HMRC considers an acceptable business expense, and how to keep your records strong enough to support your claim.

Duality of purpose

When HMRC looks at sponsorship, the main question is whether the money was spent wholly and exclusively for the business. If there’s any personal element, such as funding a director’s favourite hobby or sponsoring a family member, the expense could be rejected because of a "duality of purpose".

For example, if you run a bakery and sponsor your brother’s cycling team, HMRC might see that as a personal benefit rather than a business expense. On the other hand, if the cycling team gives your bakery’s name significant exposure, with branding on kit and at events, and there’s a clear marketing return, you could argue it’s a valid expense.

Allowable sponsorship expenses

To meet HMRC’s standards, the sponsorship must promote the business. Examples of costs you may be able to claim include:

• Branded clothing or kit with your company logo.
• Advertising space on vehicles, bikes, or event equipment.
• Entry fees or memberships tied directly to business promotion.
• Venue or facility costs linked to the sponsored event.

Whatever you spend, you need to show how it benefits your business. Keep evidence such as photos of branding, copies of promotional materials, or audience reach statistics. Written agreements and invoices can strengthen your case.

Sponsoring family members

HMRC is especially strict where family or close friends are involved. Sponsorships like this are rarely allowed unless the business case is clear and strong. A good test is to ask: would you pay the same amount if they weren’t related to you?

For example, if your cousin is a professional golfer and your company sells golf clubs, sponsorship could be justified. But you would need evidence that the arrangement delivers real marketing value, such as exposure to your target customers.

HMRC Commerciality considerations

Even if a sponsorship has no personal element, HMRC still wants to see commercial thinking. They may check:

• Was there a written agreement?
• Were deliverables set out clearly?
• Were other options considered and rejected?
• Does the sponsorship reach the right audience?

Overpaying or sponsoring something far removed from your market can raise concerns. For instance, if a Glasgow shop sponsors an event in London without any local relevance, it could be questioned. HMRC may look at evidence such as negotiations, marketing plans, and how results are monitored.

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What about sponsoring a charity?

Charity sponsorship can qualify, but the same rules apply. HMRC will want to see a business benefit, such as:

• Your logo appearing on charity materials.
• Public recognition at events.
• Mentions on websites or social media.

A simple donation to charity is treated differently and does not count as a sponsorship expense. Only payments that give your business publicity or promotional opportunities can be treated as allowable.

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Weighing up the benefits

Before signing any sponsorship deal, think carefully:

• What results are you expecting?
• How will you measure success?
• Can you afford the spend?
• Could other marketing methods work better?

Working out your return on investment (ROI) is important. Regularly review the value of your sponsorships, especially if you plan to renew them. Clear targets and measurable outcomes help prove to HMRC that the money was spent for commercial reasons.

Is a sponsorship agreement necessary?

Yes. A written agreement should cover:

• The value and length of the deal.
• What the sponsored party will provide, such as branded posts, appearances or advertising space.
• A termination clause if things do not go to plan.

A clear contract keeps everyone accountable and is strong evidence if HMRC needs proof of business benefit. It also helps you protect your investment if the sponsored party does not deliver.

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Play it safe

To keep your sponsorship claim simple and compliant:

• Keep detailed records of all costs and benefits.
• Negotiate reasonable prices.
• Avoid sponsorships with personal connections unless fully justified.
• Review results and adjust future spending.

When in doubt, speak to an accountant. Prosper accountancy can help you plan your sponsorships so they work for your business and meet HMRC’s rules.

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