Tribunal: Do sponsorship payments satisfy the key test?
The Tribunal recently had to determine the deductibility of sponsorship payments and concluded that no tax relief was available. This case contains a key lesson for anyone seeking tax relief for such payments.
The taxpayer company was owned and controlled by Mr C. He was keen on rugby, and the company made substantial sponsorship payments to the local club.
The owner also became heavily involved in running the club, being instrumental in making it more successful. He said he wanted to do this because it would help raise the profile of his company and make him well-known in the local business community.
The company claimed the sponsorship payments to the rugby club were deductible as expenses incurred "wholly and exclusively" for the purposes of the business.
HMRC refused the claim on the basis that the expenditure had a dual purpose: the payments were at least in part to support the club and to enable Mr C to pursue his interest in it.
The Judge noted that:
"The requirement of ‘wholly and exclusively … for the purposes of the trade’ is a restrictive one, and it would be surprising if the provision allowed the deduction of sums (and in this case substantial sums) laid out for the immediate purpose of promoting the trade of someone other than the taxpayer, in circumstances where the ‘knock-on’ benefits to the taxpayer’s trade, whilst real, were intangible and hard to quantify."
The Tribunal therefore concluded that the sums paid had not been made wholly and exclusively for the purpose of the trade and were therefore not deductible. The taxpayer’s appeal was dismissed.