Sport Sponsorship Not Tax-Deductible, Rules Tribunal

When a rugby fan sponsored his local rugby club to the tune of more than £1 million over a decade and promoted his business by a variety of means through his connection with the club, he sought Corporation Tax relief for the payments made.

He also became a shareholder and director of the rugby club.

HM Revenue and Customs (HMRC) questioned whether this expenditure was ‘wholly and exclusively’ for business purposes. As explained by Mr Justice Birsse, “Essentially the point is that the business purpose must be the sole purpose of the expenditure. Expenditure for a dual purpose, one of which is a business purpose but the other is not, falls outside the provision and is not deductible.”

The Upper Tribunal accepted that the expenditure was ‘wholly’ for business purposes. However, with regard to it being ‘exclusively’ for business purposes the judge noted that, “Although the taxpayer’s subjective intentions are determinative, these are not limited to the conscious motives which were in his mind at the time of the payment. Some consequences are so inevitably and inextricably involved in the payment that unless merely incidental they must be taken to be a purpose for which the payment was made.”

The judge added, “The question does not involve an inquiry of the taxpayer whether he consciously intended to obtain a trade or personal advantage by the payment. The primary inquiry is to ascertain what was the particular object of the taxpayer in making the payment? Once that is ascertained, its characterisation as a trade or private purpose is in my opinion a matter for the Tax Tribunal, not for the taxpayer.”

The judge took the view that the intended consequence of the sponsorship was to improve the finances of the rugby club. As this was not exclusively a business purpose of the sponsoring business, the payments were not allowable deductions for tax purposes.

This decision may well be appealed as the amount of tax at stake is considerable. It has potentially major implications for the sponsorship of many sports clubs that are effectively subsidised by local businesses owned by fans of the club.

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