Promoting your business tax efficiently

The Taxman allows you to reclaim the VAT paid on the cost of promoting your business. But will he change his mind where this amounts to sponsoring your favorite sporting event or hobby?

Straightforward advertising of products or services should be allowable (i.e. you get to claim back any VAT charged to you). But what about promoting your business' name through an involvement in motor or horse racing? It doesn't have to be grand or expensive - perhaps a keen karter or promising point- to-pointer.

But a VAT Inspector may seek to reverse any Input VAT you have claimed back on the basis that it is amusement or entertainment. So how do you beat the VATman?

It's all in the mind

Success has come where racing can be seen as a true attempt to benefit the business rather than indulge the personal interests of the proprietor. Let's start by looking at a landmark case in the taxpayer's favour.

In Flockton Developments Limited a company which manufactured plastic storage tanks, reclaimed Input VAT on the training and upkeep of a racehorse. The VATman issued an assessment to recover the tax and the company appealed, contending that it had purchased the horse for promotional purposes. Indeed the principal director gave evidence that this was the sole object, which he had in his mind when he decided to buy the horse. The Court allowed the company's appeal. Customs did not take the case any further and the decision has been quoted in a number of subsequent cases.

The taxpayer won in the Steve Hill Plant Hire case because the MD was a "successful" rally driver of the company's (racing) car which also displayed its name. So hire a famous name to win you a couple of local races - don't forget to keep the photos and press cuttings (with an advert on same page).

Last resort, compromise

In a number of motor racing cases the VAT tribunals have told the VATman to think again with his assessments and reach a compromise with the taxpayer. Tribunals will often say that the motor racing has a dual purpose (advertising and pleasure) and declare that say 70% of the disputed tax is deductible.

Memory joggers

The tips that can be drawn from this and the cases that followed are:

Tip 1. Have the horse or car or kart, etc named after the company or its product. Even better if you can connect the name with your type of business in the programme.

Tip 2. Enter races near to your trading premises or within the catchment area of most of your customers. Make a note of any business that comes about as a direct result of competing. It helps if there is a reasonable chance of being successful in this objective of attracting customers.

Tip 3. Entire ownership of the horse or car is more appropriate than a share in one.

Tip 4. Keep business entertainment separate, not as the main reason for the ownership.

Tip 5. Keep the managing director's (MD) private recreational interest (hobby) or personal prestige out of it (as much as possible!).

It is possible to recover Input VAT on normal advertising. But if it looks more like a hobby or entertainment you need to prepare your case. Otherwise you will have to pay back most of what you have claimed.

If you need any more information on VAT or any other tax issues, please contact us on 0191 3864786 or by emailing information@westwaters.com

Promoting your business tax efficiently

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