VAT and Income

A recent query we received related to sponsorship received and how this should be treated for VAT and corporation tax purposes.

If the sponsorship payments are not made in return for goods or services provided by the charity (eg advertising), they will normally be classed as a charitable donation and therefore not taxable.

A charity acknowledging a contribution will not make it trading income. Advertising to be deemed as goods/services being provided must incorporate:

  1. Large and/or prominent displays of logos
  2. Large and/or prominent displays corporate colours
  3. Large and/or prominent displays of sponsors products or services.

For corporation tax, any items deemed as ‘trading’ are subject to tax at the prevailing rate. There are however the small tax thresholds which the income may fall below.

This table shows how the small trading tax exemption limits are applied.

Charity’s gross annual income

  • Under £20,000
  • £20,001 to £200,000
  • Over £200,000

Maximum permitted small trading turnover

  • £5,000
  • 25% of your charity’s total annual turnover
  • £50,000

For more information, please contact Sophie Holmes at sophie@360accountants.co.uk

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