Investing in the next generation: An overview of the new UK corporation tax relief for grassroots sport

Published 09 March 2018 By: Leigh Thompson, Richard Baldwin MBE; FCA; CTA; B Com

Man holding money on sports field

The Finance (No. 2) Act 2017 introduced for the first time a new statutory tax relief for corporate contributions to grassroots sport in the UK.1

This article provides an overview of the new legislation and its impact on both the sports sector and wider corporate donors. The article also considers a number of potential future reforms to the relief which could further boost investment in grassroots sport through the tax system.

Specifically, it looks at:

  • Background: What is the significance of the relief and how has it come about?

  • The legislation: How does the relief work?

    • Section 217A – Relief for grassroots sport

    • Section 217B – Meaning of qualifying expenditure on grassroots sport

    • Section 217C – Meaning of qualifying sports body

    • Section 217D – Relationship with Part 6 Corporation Tax Act 2010

  • HMRC guidance on the legislation

  • Analysis: What does it mean for the sports sector and beyond?

    • Impact on NGBs

    • Impact on grass roots clubs

    • Impact on corporate donors

  • Possible future reform

    • Amend the definition of a "qualifying sports body"

    • Extend relief to allow for smoothing of grassroots expenditure over time

    • Raise the cap on direct payments

    • Enhanced tax relief for grassroots spending

  • Conclusion

Background: What is the significance of the relief and how has it come about?

Like most other UK businesses, national governing bodies of sport (NGBs) are liable to corporation tax on profits which fall within the tax schedules, the most common of which are profits from a trade.2 However, not all of an NGB's activities constitute a trade; usually it is only the "elite" or "professional" activities that are trading.

NGBs therefore earn taxable profits from their trading activities, for example as a result of income generated by national and international competitions. In order for particular costs to be deductible in arriving at the trading profit, they must be incurred "wholly and exclusively" for the purposes of the trade.3 Grassroots expenditure is not generally considered to be "wholly and exclusively" incurred for the purposes of the trade and therefore cannot be deducted in calculating the profits liable to tax.

As a result, corporation tax has to be paid on an NGB’s trading profits before funds can be made available to invest in grassroots – an NGB might otherwise suffer a loss unless its grassroots expenditure were restricted. The effect of the "wholly and exclusively" test is therefore to reduce the amount of funds available for investment in grassroots sport.

To address this historic problem, some have NGBs set up affiliated charities through which to channel grassroots expenditure. Under this mechanism, tax relief is given to an NGB not as a trading expense but as a donation to charity when payment is made under the statutory relief for company donations to charity so the "wholly and exclusively" test is avoided. However, setting up and maintaining such charitable structures is not without costs and NGBs do not have strategic control over the charities themselves or how they spend the money donated to them which has to be applied for charitable purposes.

The significance of the Finance (No. 2) Act 2017 is therefore that it creates an entirely new, statutory relief specifically for grassroots sport expenditure which avoids both the "wholly and exclusively" test and the need to set up a separate charitable structure.

The UK Government first signalled an intent to consider changes to the tax system for sport in its initial consultation on a new strategy for sport in July 2015.4 In its response to that consultation, the Sport and Recreation Alliance proposed the introduction of statutory tax deductibility for expenditure on grassroots sport made by NGBs precisely to address the challenge posed by the application of the "wholly and exclusively" test. Following further discussion, Government announced in the Autumn Statement in November 2015 that it would:

…Launch a consultation at Budget 2016 on how to expand support that can be given to grassroots sport through the corporation tax system.5

This commitment was reaffirmed in the Government’s new strategy for sport, Sporting Future: A new Strategy for an Active Nation published in December 2015.6

At Budget 2016, HM Treasury published a more detailed consultation setting out various options for how a new tax relief for grassroots sport might work.7 Of particular interest was the willingness to consider a broad relief which would make all qualifying expenditure on grassroots sports tax deductible, not just expenditure incurred by NGBs. The Sport and Recreation Alliance again made a detailed submission to the consultation and HM Treasury published its response in December 2016.8 This confirmed that any company making a qualifying contribution to grassroots sport would be able to deduct the expenditure when calculating profits liable to corporation tax, subject to certain restrictions.

Government subsequently published legislation in draft in December 2016.9 Following further discussions between the Sport and Recreation Alliance and officials on the technical detail of the proposed legislation (and an extended hiatus for a General Election), the Finance (No. 2) Act 2017 finally received Royal Assent on 16 November 2017.


The legislation: How does the relief work?

The relevant parts of the Finance (No.2) Act 2017 are contained within Section 22.10 The main effect of Section 22 is to introduce a wholly new part to Corporation Tax Act 2010 (Part 6A) which establishes that qualifying payments to grassroots sport can be deducted when calculating profits liable to corporation tax.11

This new relief sits alongside, but is separate to, the existing relief for charitable donations set out in Part 6.12 As with the other reliefs in the Corporation Tax Act 2010, the geographical scope of the grassroots sport relief extends to all companies subject to UK tax. The new relief takes effect from 1st April 2017 so it may affect tax payments already made.

The new Part 6A of the Corporation Tax Act 2010 is structured into four key sections:

Section 217A – Relief for grassroots sport

Section 217A establishes the core relief which enables expenditure on grassroots sport to be deducted for the purposes of calculating taxable profits:

A payment made by a company which is qualifying expenditure on grassroots sport (and which is not refunded) is allowed as a deduction in accordance with this section from the company’s total profits in calculating the corporation tax chargeable for the accounting period in which the payment is made .13

In practice, the restriction of the deductibility to expenditure incurred within the same accounting year, while perhaps intuitive and easy to administer, does pose some challenges for NGBs which have an uneven trading income profile. Some NGBs will generate significant sums on a cyclical basis – for example as a result of broadcast deals or the hosting of major events – and it is often impossible (and undesirable) to exhaust all the income generated on grassroots expenditure within a single year. A potential future reform to address this difficulty is set out further below.

In addition, Section 217A confirms the deduction for expenditure on grassroots sport can only be made once all other available reliefs have been exhausted and that any deduction can only reduce taxable profits in the relevant period to zero i.e. a deduction cannot be used to incur a tax loss.14 However, if there is excess expenditure, it can be surrendered to other members of the NGB's tax group by way of group relief for use in the same accounting period.15

Section 217A further establishes that where a payment is made either by or to a qualifying sport body (see Section 217C below), the full amount of the payment can be deducted when calculating profits liable to tax.16 In practice this means that all qualifying expenditure on grassroots sport made by NGBs themselves and payments made to them by companies for qualifying purposes are fully tax deductible.

If a payment is not made by or to a qualifying sports body, the payment is treated as a "direct payment" and the amount of any such payment that can be deducted is capped at £2,500 in any one accounting year.17 Direct payments would include payments by or to local sports clubs.

Section 217A contains restrictions on the amount of the payment eligible for relief. Firstly, it must not be refunded; this might happen where a donation is made for a specific project but the full amount is not spent and a refund made to the donor. Secondly, if a payment to support grassroots sport is made out of a payment the company has itself received for those purposes – for example grants made by one of the Home Sports Councils for specific grassroots projects – a deduction is only available to the extent that the payment is made out of the amounts received which are brought into charge to corporation tax.

Section 217B – Meaning of qualifying expenditure on grassroots sport

Section 217B (1) establishes that a payment is qualifying expenditure on grassroots sport if:

(a) it is expenditure incurred for charitable purposes which are purposes for facilitating participation in amateur eligible sport, and

(b) apart from this Part [6A], no deduction from total profits, or in calculating any component of total profits, would be allowed in respect of the payment.

For the meaning of charitable purposes, see sections 2, 7 and 8 of the Charities Act 2011 .18

This ties the relief closely to the existing charitable tax relief and in particular the relevant test established in the Charities Act 2011 which requires that spending for charitable purposes must have a public benefit.19 The advantage of casting the relief in this way is that it is targeted at the purpose of the expenditure and allows deductibility for a wide range of grassroots spending instead of by reference to a prescribed list of different types of expenditure. In this context it is for the corporation tax payer to demonstrate that any expenditure deducted under the relief is qualifying expenditure.

Section 217B (3)(b) confirms that for the purposes of the new Part 6A, an "eligible sport" is defined by reference to the list of sports recognised by the Home Sports Councils.20 Over 100 sporting activities (and associated sub-disciplines) are currently recognised.21

Section 217B (2) also confirms that where expenditure is incurred for both the charitable purposes of facilitating participation in grassroots sport and other purposes, it is to be apportioned on a "just and reasonable" basis and a deduction allowed only for that part which is attributable to grassroots sport.22 This is important since NGBs will often incur expenditure for different purposes and should make it relatively straightforward for to administer the relief and associated corporation tax returns.

Finally, Section 217B (3)(a) makes clear that payments made to players for playing (as opposed to just paying reasonable out of pocket expenses) are not considered qualifying expenditure but that payments made to coaches or officials for their services may qualify for relief.23

Section 217C – Meaning of qualifying sports body

Section 217C(1) and (2) establish that a "qualifying sports body" is:

(1)(a) a recognised sport governing body;

(b) a body which is wholly owned by a recognised sport governing body.

(2) A “recognised sport governing body” is a body which is included from time to time in a list, maintained by the National Sports Councils, of governing bodies of sport recognised by them.24

Set alongside the provisions in Section 217A, this definition means that only NGBs recognised by the Home Sports Councils (and their 100% subsidiaries) may deduct the full amount of any qualifying grassroots expenditure incurred when calculating profits liable to tax. In addition, it confirms that payments made to recognised NGBs and their wholly-owned subsidiaries for qualifying purposes can be deducted in full by the donor company.

Any payments made either by or to companies other than NGBs and their subsidiaries are treated as "direct payments" under Section 217A and relief is capped at a maximum of £2,500 in any accounting year.

The application of the relief to wholly-owned subsidiaries is a reflection of the fact that some NGBs do use subsidiaries to administer their grassroots responsibilities, either in whole or in part. The authors also consider some potential extensions to this rule further below.

Section 217D – Relationship with Part 6 Corporation Tax Act 2010

Section 217D confirms that the deduction for grassroots expenditure only applies where alternative routes for deductions through charitable donations (including donations to Community Amateur Sports Clubs) which exist under Part 6 of Corporation Tax Act 2010 are unavailable.25


HMRC guidance

The legislation itself is supplemented by HM Revenue and Customs (HMRC) Guidance which was published in January 2018.26 The guidance assists in clarifying how the relief is to be applied in practice and confirms that:

  • In order for expenditure to be considered qualifying expenditure, it must meet the same two-part "public benefit" test as charitable spending: the expenditure must create a benefit and that benefit must be available to a sufficiently broad proportion of the population.27 The guidance helpfully notes that the public benefit test will be interpreted in the light of all the circumstances – providing any personal benefit received by the donor is incidental and that the funded activity is open to a sufficiently broad section of the public, a payment will generally qualify for relief.28 This is important in the context of grassroots sport, certainly at club level, since it is likely individuals and local businesses will wish to donate to clubs with which they have a close association. Under these circumstances, an unduly restrictive approach to the public benefit test would limit the effectiveness of the relief.

  • The relief is intended to be wide in scope. For example, expenditure on activity or infrastructure designed to raise awareness of opportunities to participate in grassroots sport and to make it easier for people to take up such opportunities will attract the relief. This would cover investment in new technology e.g. apps and software systems and, potentially, marketing campaigns which facilitate greater participation in grassroots sport.29

  • Qualifying expenditure includes expenditure on items required to play sport e.g. kit, equipment and facilities even though such expenditure may be capital in nature. This is important since it confirms that relief will be given for capital investment designed to upgrade the grassroots sporting infrastructure.


Analysis: What does it mean for the sports sector and beyond?

The new relief has implications for three main types of organisations within and outside of sport.

Impact on NGBs

NGBs will clearly benefit significantly from the change – they will now be able to deduct all qualifying grassroots expenditure when calculating profits liable to tax. This should free up funds for investment in grassroots which were previously constrained by the application of the "wholly and exclusively" test.

For those NGBs with an affiliated charity, the new relief should open up opportunities to look strategically at how best to maximise the long-term impact of grassroots expenditure. However, it must be borne in mind that as currently constituted, the relief restricts NGBs to deducting only qualifying expenditure incurred within the same accounting year. Many affiliated charities which have established a significant grassroots presence and brand awareness will therefore continue to have an important role in administering grassroots expenditure.

In addition, NGBs will be well-placed to attract payments from companies which are put to qualifying purposes since the donor company will be able to deduct the payment in full when calculating its taxable profits. The structure of the relief should create opportunities for NGBs to explore relationships – outside of formal sponsorship agreements – with corporates looking to invest in grassroots sport, for example for corporate social responsibility reasons.

Impact on grassroots clubs

Under the "direct payment" rule, grassroots clubs will benefit from the ability to deduct up to a maximum of £2,500 pa of qualifying spend when calculating their profits liable to tax (if applicable).

Similarly, companies will be able to claim the same deduction for direct payments where the money is used to support grassroots sport, for example through a payment to a local sports club. 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.

Impact on corporate donors

As highlighted above, the nature of the relief creates incentives on companies outside of sport to make contributions to bodies involved in delivering grassroots sports, be they NGBs or clubs. Clearly, there is an advantage to making contributions to NGBs as they attract relief on the full amount of the payment whereas the relief on payments to other bodies is capped but in both cases, companies can make contributions without having to justify the payments as sponsorship which are sometimes challenged by HMRC.

In addition, companies may deduct up to £2,500 pa themselves where they invest directly in grassroots sport. As an example, a company may stage a grassroots sports event itself the costs of which, providing it met the test for qualifying expenditure, would be deductible in calculating its taxable profit.


Possible future reforms

While the new relief is an extremely welcome move, the authors believe that it could, in future, be reformed in a number of ways to further sharpen the incentives to invest in grassroots sport.

Amend the definition of a "qualifying sports body"

In relation to payments made by or to a "qualifying sports body" the relief is restricted to recognised NGBs and their wholly-owned subsidiaries. One option would be to relax this rule to allow the relief for payments made by or to all majority-owned subsidiaries and joint ventures as well as for payments made by or to NGBs’ constituent counties and regions.

Some NGBs do operate majority-owned subsidiaries or joint venture arrangements and extending the rule in this way would incentivise contributions to grassroots made through these vehicles.

Similarly, a number of NGBs have constituent county or regional bodies which often have an important role in the provision of grassroots sport, for example running local competitions and events. Depending upon their structure and activity, these organisations may generate taxable profits and applying the relief to their grassroots expenditure would deliver similar benefits to those enjoyed by NGBs at national level. Currently the relief available to these organisations is restricted to £2,500 pa under the "direct payment" rule. 

Extend relief to allow for smoothing of grassroots expenditure over time

As highlighted above, the relief is restricted to expenditure incurred in the same accounting year in which the relevant taxable profits are generated. However, many governing bodies often have uneven income profiles whereby income in some years can be much higher than others, for example as a result of hosting a major international event. This income profile makes it difficult (and indeed undesirable) to exhaust all the income generated on grassroots spending within the same year.

In this context, the legislation could be modified to support the smoothing of grassroots expenditure by extending the relief to grassroots expenditure incurred in future years using surplus income carried over i.e. not simply to expenditure incurred within the year in which the income is generated. This could be done by enabling the ability to carry back losses, for example where grassroots expenditure in future years exceeds taxable profits.

Raise the cap on direct payments

Currently no more than £2,500 of qualifying expenditure can be deducted under the "direct payment" rule in any accounting year. In the authors’ view, this cap could be raised significantly – perhaps to £25,000 or even more in any one accounting year – to better incentivise substantial direct investment in local grassroots clubs.

Enhanced tax relief for grassroots spending

The new relief could in future provide the basis for an improved incentive for NGBs to invest in grassroots sport by adopting a similar model to the creative industry tax reliefs which are available to eight different sectors of the creative industry including films, theatres and television.30 These reliefs work by allowing qualifying companies incurring qualifying production costs to claim an additional tax deduction e.g. 80% of qualifying core expenditure, in computing their taxable profits. This in itself can give rise to significant tax savings (at a tax rate of 19% currently) but the relief is made more valuable since if it creates a tax loss, this can be used to claim a payable tax credit of 20% or 25% of the losses surrendered.

This sort of enhanced tax incentive for NGBs could go further than the new grassroots sport relief by providing an additional tax deduction for defined grassroots spending e.g. on projects which encourage or facilitate participation in sport by juniors. This could make grassroots sport more sustainable on a national basis and would contribute to wider public policy goals in terms of tackling obesity and inactivity amongst children and young people. The Exchequer costs could be controlled by defining the nature of qualifying expenditure and the percentage additional deduction in the same way as it is for the creative industry relief.



The introduction of the new corporation tax relief for grassroots sport is a very welcome move and represents the result of a significant amount of work undertaken by the sector to address a long-standing issue faced by NGBs.

As the relief applies to payments made after 1st April 2017, NGBs and other organisations should consider payments already made in the accounting year to date to see if they meet the test for qualifying expenditure.

In addition, NGBs and clubs should actively consider the scope for generating additional investment in grassroots from corporate donors given the broad structure of the new relief. This will be of particular value given the wider pressure on the sector to find alternative sources of income to replace existing public funding.31

Related Articles


Leigh Thompson

Leigh Thompson

Leigh is a Policy Adviser at the Sport and Recreation Alliance, the umbrella organisation for the governing and representative bodies of sport in the UK.

His main areas of focus include sports betting integrity – principally providing support to the Sports Betting Group – as well as broadcasting, tax and fiscal policy and EU sports policy. He has a background in policy and regulation having held similar posts in other sectors prior to joining the Alliance.

Leigh holds degrees in Economics and Public Policy and recently completed a Postgraduate Diploma in Sports Law. He has a keen interest in the legal and regulatory aspects of sport.

  • This email address is being protected from spambots. You need JavaScript enabled to view it.
Richard Baldwin MBE

Richard Baldwin MBE; FCA; CTA; B Com

Richard Baldwin MBE; FCA; CTA; B Com (Sports tax consultant)

Richard has specialised in the taxation of sport for almost 40 years. Until 2005 he was Tax Partner in Deloitte's London Office leading its sports tax practice. Since leaving Deloitte he spends most of his time advising clubs on tax particularly CASC and charity status. Much of his time is provided on a pro bono basis. He was awarded the MBE for his services to sport in 2013.
  • This email address is being protected from spambots. You need JavaScript enabled to view it.