Out-Law Guide 9 min. read

What insurers should know about charity tie-ins and sponsorship

This guide is based on the law of England and Wales. It was last updated on 29th April 2009 .

This guide is based on the law of England and Wales. It was last updated on 29th April 2009.

Charity tie-ins and publicly sponsoring charities can be an important marketing tool for many insurers.

Under a typical partnership or affinity arrangement, the charity will receive a payment (usually part of the premium on every policy sold) and the insurer benefits from advertising provided by the charity, as well as being able to publicise the relationship in its own marketing.

Sponsorship, too, can provide promotional benefits in return for a donation. In either case, members of the charity may be offered special deals if they purchase an insurance product from the insurer.  

All too often, however, important charity law issues to which these arrangements give rise are overlooked, or only considered at a relatively late stage, when legal and compliance teams are already under a lot of pressure in the drive to launch a new product or service.

Even seemingly straightforward affinity or sponsorship agreements can result in unexpected and unwelcome tax consequences if not carefully structured from the outset.

Affinity arrangements

Charity law imposes specific requirements on 'commercial participators', such as insurers, when they enter into affinity-type arrangements with charities. In particular, the regime prescribes what can and cannot be said in the product's marketing materials.

The rules are set out in Part II of the Charities Act 1992 (as amended) and the Charitable Institutions (Fund-Raising) Regulations 1994.

In essence, they catch any insurer that, in the course of a promotional venture, makes representations that funds are to be given to, or applied for the benefit of, a charity. They apply whether the representation is direct or indirect, and whether or not it is linked to a specific product or service.

It is not hard to fall foul of these requirements, especially given the understandable desire of marketing teams to present the product or service in the most attractive light. But pitfalls can be avoided if the arrangements are carefully structured.

Firstly, there needs to be a written agreement in place with the charity before the arrangement commences.

The legislation stipulates various details which must be included in this agreement, such as the nature and amount of payments due to the charity, the circumstances in which they will or will not be payable and any remuneration/expenses to which the insurer is to be entitled.

In addition, the rules require that every representation made by the commercial participator must be accompanied by a 'solicitation statement' (see below). Additional requirements apply where representations are made over the telephone, or via TV or radio broadcasts.

The commercial participator must keep records relevant to the agreement and make them available to the charity for a reasonable period after the agreement ends. There is also a requirement to pay over any funds due to the charity without deduction and within 28 days of receipt at the latest.

Different issues arise when (as is often the case) the arrangement is made solely with a trading subsidiary of the charity. These are considered below.

The solicitation statement

Every representation that funds are being paid to or applied for the benefit of a charity must include a solicitation statement.

This is not simply another piece of paper to be sent out with the policy details. The rules apply to representations made in general advertising as well as in the documentation for specific products and to both written and oral representations.

Careful thought should therefore be given to the statement from an early stage in connection with all marketing activities. Additional procedural requirements for oral representations will also need to be taken into account.

The statement must be reasonably prominent and clearly set out the name of the charity or charities concerned and, if there is more than one, the proportions in which they will respectively benefit.

It must also specify the 'applicable sum'. In the case of insurance-related affinity contracts, this sum will usually be that part of the premium which is to be given to, or applied for the benefit of, the relevant charity. In other contexts, it might be the amount of a donation to be made in connection with the product or services being sold.

Where the actual amount is not known at the time the statement is made, the notifiable amount will be an estimate of the applicable sum 'calculated as accurately as is reasonably possible in the circumstances'. This relatively new test was introduced by the Charities Act 2006 and is stricter than previous requirements.

If the amount payable to the charity is likely to vary, the statement should normally state the minimum figure and set out how it may vary. If this is not practical in the context of general advertising, the statement should provide minimum and maximum levels. It is never sufficient to simply refer to ‘a proportion'.

Note that the Charity Commission’s view is that the estimate refers to the amount of consideration for each product or service. A statement is unlikely to satisfy this requirement if it uses an averaged figure across various products. It is therefore advisable to specify the amount payable for each product, unless the difference between them is minimal.

Marketing costs borne by the charity need not normally be factored in, but take care if they reduce the figure that is actually paid over as this could potentially make the statement misleading.

Trading subsidiaries

The commercial participator rules set out above may not strictly apply if the arrangement is made solely with a trading subsidiary of the charity. In practice, however, a solicitation statement is likely to be needed if any representation is made about the benefit the charity will receive, albeit indirectly. In our experience, this is normally the case.

Where payments are made to a trading subsidiary, it must be made clear to potential customers that it is a commercial trading company, not a charity. Sometimes this information is given in a footnote, but this option should be used with care to avoid misleading customers into believing that the monies are going to the charity directly.

In addition, if it is represented that payments will benefit the charity, the solicitation statement must be very carefully worded, given that in practice the insurer may not be in a position to guarantee that the charity itself will actually benefit.

It is also important to consider whether all or part of the payment might in fact amount to a donation, as this will affect the tax position of both the insurer and the charity (see below).


Commercial participators who fail to comply with the requirements could face criminal penalties. In principle, these could apply to each individual infringement.

Breach of the solicitation statement requirements, for instance, attracts a fine of up to £5000. The fine for failing to keep appropriate records or for paying over monies outside the 28-day period is up to £500.

A false representation that monies are being paid to a charity could cost £5000. Liability under this head may be incurred if the involvement of a trading subsidiary is not sufficiently highlighted.

A director or manager who consents to acts or omissions that breach the rules can also be held personally liable and face similar penalties.

In addition, the company may be unable to enforce the agreement against the charity.


Sponsorship agreements can also give rise to some awkward charity law and tax issues.

From a charity law perspective, the 'commercial participator' rules outlined above do not normally apply to a simple sponsorship or to the corresponding use of a charity's name and logo.

But if the sponsorship is part of a wider agreement with the charity (such as an affinity contract), the rules may extend to the sponsorship arrangement as well. In any event, the Charity Commission recommends that they are followed to the extent they are relevant.

The principal issue for insurers, however, is likely to be the tax treatment of payments made under the sponsorship agreement.

Tax treatment

Tax relief may be available to payments made to a charity under one of two heads:-

  • if they are made wholly and exclusively for the purposes of the insurer's trade, and  provided that they are not capital in nature; or
  • under gift relief.

There is a potential trap here. The 'wholly and exclusively' test may not be met if the payment is partly a donation. On the other hand, gift relief will not be available if the insurer is deriving a benefit from the gift which exceeds a certain level. This varies but is never more than £500 – clearly, a very low threshold.

These issues not only apply to sponsorship arrangements but also to any payments the insurer makes to a charity involving a gift element from which the insurer also derives some benefit.

In these circumstances, it may be desirable from the insurer's point of view for the payment to be split, so that any element attributable to advertising is separated out. But this is likely to be a less attractive option for the charity.

The charity's key concern will be whether the sponsorship constitutes 'trading', rather than a simple donation. This will depend on whether the charity is supplying advertising and publicity services in return for the sponsorship.

A simple acknowledgment should not constitute trading. But concerns would arise if, for example, the charity provided a prominent display of the insurer's name and/or logo, or reference to services offered by the insurer.

For the charity, trading leads to more complicated and usually less favourable tax consequences. As a result, it is unlikely to want the payment from the insurer to be split, unless the trading element can be routed through a trading subsidiary, which in some circumstances may be difficult to justify.

If payment is made to a trading subsidiary, gift aid will not be available to the insurer as payor. The insurer will therefore want to be confident that any such payment can be justified as 'wholly and exclusively for the purposes of the insurer's trade'.

The VAT implications of any payments must also be borne in mind. Since the supply of advertising services is a taxable supply for VAT purposes, the charity might need to charge the insurer VAT. Whether or not there is a taxable supply depends upon much the same factors as the trading issue discussed above.

Of course, insurers are generally unable to recover VAT due to the nature of their business. Consequently any VAT charged would be a real cost to the insurer, unless the consideration was stated to be VAT-inclusive, in which case the payment to the charity would be reduced.

Benefits offered to charity members

The insurer may also want to offer benefits directly to charity members, such as a premium discount if they take out an 'affinity' insurance policy which, in turn, provides benefits to the charity.

It is important to be aware that offers of this type can impact on the gift aid relief the charity is able to claim on donations from its members.

One of the conditions for gift aid to apply is that no benefit (over a minimum limit) is received by the donor or a connected person in consequence of making the gift. If this test is not satisfied, no gift aid at all is available - it is not simply a matter of disallowing relief up to the value of the benefit.

The question whether an associated benefit is received 'in consequence' of making a gift is not straightforward. Arguably, the simple fact that members receive the right to benefits as a result of having made a gift (normally on joining the charity or renewing their membership) could be enough to establish the link.

In practice, however, the issue will depend to a substantial extent on the content of any publicity provided to members before they made their gift and the degree to which the right to receive discounts was highlighted by the charity as being a benefit of membership or offered as an incentive to join.

But consideration should also be given to whether, looking at the wider picture, the charity could be said to be soliciting the discounts from the commercial participator if sales of the affinity policies in question directly benefit the charity or its trading subsidiary.

The value of the benefits provided may also fall below the minimum limits, in which case gift aid relief is unaffected. Current limits are 25% of the amount of the gift, where the gift is £100 or less, and £25 where the gift exceeds £100 but is not more than £1000, with additional rules for larger amounts.

Whether these limits apply will be a question of fact in all the circumstances. The answer is likely to depend on, amongst other things, the nature of the benefit being offered and its likely take-up.

Contact: Janet Hoskin [email protected] (0113 294 5224)

See: The Charitable Institutions (Fund Raising) Regulations 1994

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