Sponsorship Expenses: IRD’s New Guidance Means It’s Time to Check the Evidence

Many businesses sponsor sports teams, community events, athletes, charitable causes, or themselves.

Sometimes the arrangement is straightforward: a business pays for signage, branding, naming rights, uniforms, advertising exposure, or event presence.

But sometimes it is not so straightforward.

In April 2026, Inland Revenue released a new Interpretation Statement, IS 26/10: Income tax implications of providing sponsorship. The statement looks at when sponsorship costs may be deductible for income tax purposes, and where the line may be drawn between genuine business promotion and something else.

For business owners, this is a timely reminder: sponsorship is not automatically deductible just because there is a logo involved.

The key issue: is it really business promotion?

IRD’s starting point is that sponsorship can be deductible where there is a sufficient connection between the expenditure and the business’s income-earning activity. In plain English, the sponsorship needs to be genuinely connected to promoting or advertising the business.

That does not mean every sponsorship must immediately generate sales. Marketing often works indirectly. But the business should be able to show why the sponsorship made commercial sense at the time the cost was incurred.

That is where many arrangements can become vulnerable.

A sponsorship payment may look like marketing on the surface, but IRD may look further into the actual purpose of the expenditure, the surrounding facts, the expected benefit to the business, and who else is receiving a benefit.

A logo alone may not be enough

Businesses often assume that having their logo on a shirt, vehicle, boat, event banner, race entry, or social media post will be enough to support a deduction.

It may help.

But by itself, it may not be enough.

IRD’s statement points to several factors that may support a business purpose, including the terms of the sponsorship arrangement, the place of the sponsorship within a coherent marketing strategy, the relationship between the sponsored audience and the business’s market, and the relationship between the expenditure and income derived.

In practice, this means businesses should be asking questions such as:

• Who are we trying to reach?

• Why is this audience relevant to our business?

• What exposure or promotional benefit are we receiving?

• Is the amount commercially justifiable?

• What evidence do we have?

• Would an independent third party have entered into a similar arrangement?

  
  

If those questions are difficult to answer, the deduction may be harder to defend.

Related-party sponsorships need particular care - Sponsoring YOU

One area that deserves close attention is sponsorship involving owners, shareholder-employees, employees, family members, or other associated persons.

These arrangements are not necessarily wrong. A business may genuinely obtain advertising value from sponsoring a person connected with the business.

However, the risk is that the payment may be seen as partly, or wholly, something other than business advertising. For example, it may look like a private benefit, a disguised reward, or a distribution of value to a shareholder.

That risk increases where the sponsorship funds equipment, travel, entry fees, sporting activities, personal interests, or lifestyle-related costs connected to someone involved in the business.

This is the type of arrangement where the paperwork, commercial rationale, and valuation of the marketing benefit become very important.

Employee sponsorships may have other tax consequences

IRD also notes that if an employer sponsors an employee in return for brand exposure, the sponsorship deductibility principles may be relevant. However, in some cases, the arrangement may instead be treated as employment income or may give rise to a fringe benefit.

That distinction matters.

The income tax deduction question is only one part of the analysis. Depending on how the arrangement is structured, there may also be PAYE, FBT, shareholder, or company law implications to consider.

Some sponsorship costs may only be partly deductible

Another important point is apportionment.

Where sponsorship expenditure has both a business purpose and another purpose, such as a private or domestic benefit, only part of the cost may be deductible. IRD’s statement makes it clear that expenditure may be partly deductible where part of the purpose is unrelated to the business or where another deduction limitation applies.

The statement also discusses other limitations that can apply, including capital expenditure, entertainment expenditure, depreciation, timing of deductions, trading stock, and services provided as sponsorship.

This means the correct tax treatment may depend heavily on the facts.

A cash sponsorship, branded equipment, use of a business asset, discounted services, product giveaways, event hospitality, and employee-related sponsorship can all raise different tax issues.

What should businesses do now?

If your business currently claims sponsorship costs, or is considering entering into a sponsorship arrangement, now is a good time to review the position.

At a minimum, we recommend checking whether you have:

• a clear written sponsorship agreement;

• specific promotional deliverables;

• evidence of the business purpose;

• a link between the sponsored audience and your target market;

• support for the commercial value of the sponsorship;

• records of the exposure actually received;

• consideration of any private, employee, shareholder, FBT, or entertainment issues.

  
  

The stronger the evidence, the easier it is to show the sponsorship was a genuine business marketing cost rather than a personal or non-deductible expense.

The takeaway

Sponsorship remains a legitimate business expense where it is genuinely incurred to promote or advertise the business.

But IRD’s new guidance is a reminder that the label “sponsorship” is not enough. The substance of the arrangement matters.

If your business sponsors a team, event, athlete, employee, shareholder, family member, club, or community activity, it is worth getting advice before assuming the full cost is deductible.

We can review your sponsorship arrangements, identify any tax risks, and help put the right documentation in place before Inland Revenue asks the harder questions. Get in touch to book a free 30-minute consultation.

Disclaimer: The information provided in this article is general in nature and does not constitute personalised tax advice. You should consult with Business Studio before making decisions based on this content