Grassroots sports: new corporation tax deduction
Following a consultation earlier this year, the Government has now published draft legislation introducing a new corporation tax deduction from 1 April 2017 for contributions made to grassroots sports. The deduction is available to
- recognised sport governing bodies for all contributions made to grassroots sports, and
- companies on all contributions made through recognised sport governing bodies and for up to £2,500 annually on any direct contributions made to grassroots sports.
The expenditure qualifying for relief has been widely drawn to include all expenditure incurred for the charitable purposes of facilitating participation in grassroots sports. This includes, for example, payments made to coaches and officials but not to the participators in the sport other than to cover their travel costs. It will include both monetary contributions and the provision of equipment made by sport governing bodies.
The legislation will treat the expenditure in a similar way to charitable donations, which can be deducted against taxable profits in the same period but with any excess wasted. There will be restriction on the relief where benefits are received by the donors.
Our thoughts on the draft legislation
The induction of the new legislation is good news for UK sport with companies being encouraged to invest more in grassroots sports.
National Governing Bodies (NGBs) should benefit from companies making donations through them towards the grassroots funding of their sport. It will however be important for NGBs to carefully consider the implications on their own corporation tax position and whether their structure remains appropriate.
For those NGBs taxable on all activities, it ensures that a corporation tax deduction will be available for all contributions made towards grassroots sports where currently they generally do not satisfy the test that this expenditure is “wholly and exclusively for the purposes of their trade”. This may reduce the need for such NGBs to have a separate charity to obtain a deduction for grassroots sport funding, although individual donors do not benefit from the new relief but can obtain relief under gift aid on donations made to a charity.
For those NGBs taxable only on their investment income or some commercial income streams on the basis that other activities do not constitute a trade or are from a mutual trade, it may permit the possibility of setting off some of its contributions to grassroots sports against its taxable income. NGBs will not however be able to claim relief on contributions paid out of amounts received exclusively for these purposes that have not been taxed. Accordingly, consideration will need to be given to whether the taxation treatment adopted remains appropriate and if any other activities should be taxable. This could lead to increased scrutiny on their tax position by HMRC.
The timing of the contributions made by both NGBs and companies should also be carefully considered as contributions that cannot be offset against profits in the same period will be wasted.