Corporation tax reform provides boost to grassroots sport

tax reform ()

Leigh Thompson, Policy Manager, outlines a major change to tax rules championed by the Alliance designed to boost investment in grassroots sport.

  • New legislation will provide corporation tax relief for grassroots spending by national governing bodies (NGBs);
  • The relief will also be available to companies making contributions to organisations such as associations and clubs delivering grassroots sport;
  • The Alliance has lobbied for and successfully achieved introduction of the new relief in the Finance Act which passed into law yesterday.

What is the new relief?

The new Finance Act, passed into law yesterday, introduces a new statutory corporation tax relief for NGBs for their expenditure on grassroots sport and follows a significant amount of lobbying from the Alliance going as far back as 2015. This change should help reduce NGBs’ tax bills and free up more money for grassroots sport.

The legislation also extends the relief to corporate donations to NGBs, clubs and associations where the money is spent on grassroots sport. Importantly, the relief will be available for a company donation without it having to be justified as a sponsorship payment.

Companies will now be able to claim a tax deduction for the full amount of any donation made to an NGB and which is in turn spent on grassroots sport. This could provide new opportunities for NGBs – in addition to formal sponsorship arrangements – to engage with corporates, many of whom may be attracted to donate to grassroots sport.

In the case of clubs, companies will be able to claim a deduction for direct payments where the money is used to support grassroots sport up to a maximum of £2,500. However, there is no limit on the number of contributions a club can receive so there is nothing to stop a club seeking to attract multiple donations of £2,500, for example from a range of local companies. Clubs can also apply the deduction themselves providing the funds are spent on qualifying grassroots activities.

Now the Finance Act has become law, the relief is available for expenditure incurred from 1st April 2017.

Why were the reforms necessary?

NGBs have not historically been able to claim a corporation tax deduction for grassroots spending. This is because grassroots spending did not satisfy the well-established test that expenditure must be incurred ‘wholly and exclusively’ for the purposes of an NGB's trade i.e. its professional or elite activities. Supporting and administering grassroots sport was not considered to be related directly to the generation of commercial income from professional activities and therefore spending on grassroots could not be used to reduce an NGB’s taxable profits.

As a result, a number of NGBs were exposed to significant corporation tax bills which meant they had to restrict their spending on grassroots activity. In response, some have established separate charitable arms to distribute grassroots spending as these enable an NGB to gain a tax deduction for donations made to the charity. Such structures are not without practical issues, however, as the NGB does not have strategic control over the use of charity funds and there is extra administration involved.

The new reforms will therefore enable an NGB to deduct expenditure on grassroots sport when calculating profits for corporation tax purposes. This should help free up funds for grassroots and provide NGBs with more flexibility as to how they invest in grassroots sport.

What should the sector be doing?

The reforms represent a welcome boost to grassroots sport and should help to incentivise additional investment.

The sector needs to make sure it is ready to maximise the new relief.

In addition to the direct benefits, NGBs should consider the opportunities provided by the relief to generate more in the way of corporate donations. While many NGBs already have sponsorship arrangements in place, there is now scope to explore how the new relief could be maximised with both existing and new partners which have an interest in contributing financially to grassroots sport.

At a local level, clubs should proactively consider how best to make use of the £2,500 relief available for direct donations to grassroots sport. Clubs can make use of the deduction themselves but should also look to engage with interested local companies and, where possible, bundle together multiple donations to fund a wider range of activities. 

Note: At the time of writing, the final version of the Finance Act was still to be published but it is expected to include the new tax relief for grassroots expenditure as set out in the original Bill which is available here.