Q: Can sponsorship be claimed as a tax-deductible expense through a contractor's limited company? A: The basis for claiming any business expenses is that the expenditure must be wholly and exclusively for the purposes of the business. This requires that there be a clear link between the expenditure and the company's trade. Where an IT contractor is obtaining contracts by providing their CV, based upon their knowledge and skills, it is difficult to see how sponsorship could enhance the company's trade. This would suggest that sponsorship could only be claimed as a business expense where the company had at least one additional trade that did not relate to the provision of personal services. An example of this is where a business was building computer systems where the company 'badged' the finished product. Even where there is the second trade to link to the sponsorship, the Inland Revenue is likely to be suspicious of any expense which could also be viewed as the cost of pursuing a hobby of a director. For instance, the payment of an entrance fee for a race by a company, where the director or contractor is the participant, may be questioned by the Inland Revenue. The name of the company appearing on a rally car is unlikely to be considered sufficient to create the necessary link between the expenditure and the trade. This is unless, of course, the race meeting was attended by a number of potential client agencies and end users, and the significance of the company's name was clear to these potential clients. Finally, if a company has succeeded in convincing the Inland Revenue that the sponsorship was a genuine and allowable business expense, there may still be a sting in the tail. If the director or contractor receives some personal benefit as a consequence of the company's sponsorship, they may face a taxable benefit charge. An example of this might be the offer of free membership of a golf club in return for company sponsorship of a competition. Sponsorship is a means of raising a company's profile. However, the difficulty for a small company may be in convincing the Inland Revenue that it has a 'profile' to raise. ACT now over Dividend Vouchers Q: Some time ago Computer Contractor published a suitable format for Dividend Vouchers, which proved very useful. However, with recent changes to Advance Corporation Tax (ACT) and Tax Credit treatment on dividends, the wording and content for the Dividend Voucher needs to be updated; any advice on a revised format would be appreciated. A: The reduction in the rate of dividend Tax Credit, and the abolition of ACT, has created a problem for many companies. It has further blurred the lines between company funds needed to meet future liabilities, and funds which represent monies that could be made available to directors/shareholders. In the absence of ACT payments, a company needs to set aside the funds to meet its Corporation Tax charge on a regular basis, in order not to have an unpleasant surprise when the Mainstream Corporation Tax falls due for payment. We recommend that companies establish a separate deposit account for Corporation Tax funds, making payments of one quarter of the company's net dividend into this deposit account in the same manner, and at the same time, that they used to make ACT payments to the Inland Revenue. Joe Contractor Limited 1 The Avenue Little Village Buckinghamshire HP7 7TX Dividend on ORDINARY £1.00 SHARES Tax Voucher Shareholder: Joe Contractor (Shareholder's name here) Date: 19 - 11 - 99 Dividend details: Interim dividend of £(net dividend) per share Shares held: 1 (Number of shares) Tax Credit: £(one ninth of net dividend) Dividend: £(total net dividend) You should keep this voucher as it will be accepted by the Inland Revenue as evidence of Tax Credit in respect of which you may be entitled to claim relief. (Company Secretary signs here) SECRETARY Registered Office: Registered Office Address in Full 2 Park Avenue, Anytown, UK SL4 8PG (987654321) Companies House Number WEB LINKS www.giantgroup.com giant provides an integrated accountancy, tax and independent financial planning service developed exclusively for IT contractors.
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