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Often words such as Award, Contribution, Donation, Sponsorship and Support are used to describe a situation where a donor is giving a value to UCL. Staff are aware that a "donation" is not taxable but that a "sponsorship" is. Words aside in order to determine the correct VAT treatment we need to consider whether the payment is freely given with nothing expected in return or whether there is a benefit provided in return.
If a donation is freely given and provides no significant benefit in return to the donor the donation will be outside the scope of VAT.
If the donation/sponsorship is given where a significant benefit is provided in return this will be subject to VAT.
The donation can be given in the form of money, goods or services.
Examples of benefits which are considered insignificant are:
- naming the donor in a list of supporters in a programme or on a notice
- naming a building or university chair after the donor
- putting the donor's name on the back of a seat in a theatre
A consequence of the donation being outside the scope of VAT is that no input tax incurred in connection with the carrying out of the research funded through the donation can be reclaimed.
Examples of benefits which are considered significant include:
- naming an event after the sponsor
- displaying the sponsor's company logo or trading name
- participating in the sponsors promotional or advertising activities
- allowing the sponsor to use UCL name or logo
- giving free or reduced price tickets
- allowing access to special events
- providing entertainment or hospitality facilities
- giving your sponsor exclusive or priority booking rights
Where the donation/sponsorship is subject to VAT UCL will be entitled to make a full recovery of input VAT incurred in connection with the carrying out of the research funded through the donation/sponsorship.
Wider consideration
The above list is not exhaustive. There are many other situations where the sponsor may be receiving tangible benefits.
What matters is that if the agreement or understanding UCL have with their sponsor requires something deemed to be significant in return the sponsorship will be subject to VAT. If a donation is given in addition to the sponsorship payment this may be excluded from the taxable amount, provided that it is clear from any agreement that the donation is entirely separate from the sponsorship.
Corporate donations may in fact be sponsorship and care is needed to differentiate between them. It is important to check whether the company is receiving a service in return for its financial support. If only an insignificant recognition or benefit will be given to the company in return for their support then this is a donation. If there is a significant benefit given to the company this is sponsorship.