In an important decision for corporate sponsors and those who benefit from their financial help, a fishing company which stumped up £1.2 million in support of its cash-strapped local rugby club has suffered defeat in its legal campaign to deduct that sum from its profits assessable to Corporation Tax.
Over a three-year period, Interfish Limited had entered into a sponsorship deal which provided vital financial assistance to Plymouth Albion Rugby Football Club, which was in severe financial difficulties and badly needed funds for, amongst other things, improving its squad of players.
The main benefit to Interfish was greater public visibility for its business. It was also hoped that the exposure would make it easier for the company to obtain bank funding for expansion and that those involved with the club would ‘look favourably upon the company in ways that would assist its trade’.
Interfish cited Section 74(1) of the Income and Corporation Taxes Act 1988 in its bid to write off the cost of sponsoring the club against its tax liabilities under the heading of ‘advertising and marketing’. However, the deduction was refused by HM Revenue and Customs in a decision which was subsequently upheld by the First-tier and Upper Tribunals.
In dismissing the company’s challenge to those decisions, the Court of Appeal noted that the payments had also been motivated by a desire to improve the financial position of the rugby club. As the money had not been paid out exclusively for the purposes of the company’s own trade, it was not tax deductible.