One purpose permitted

The taxpayer company made sponsorship payments totalling about £1.2m between 2003 and 2006 to Plymouth Albion Rugby Football Club which was in severe financial difficulties.

The business claimed the sums as advertising and marketing deductions for corporation tax under TA 1988 s 74(1). The First-tier Tribunal and the Upper Tribunal both ruled that the payments were not deductible because they were not “wholly and exclusively laid out or expended for the purposes of the trade”.

The taxpayer appealed saying its only purpose in sponsoring the rugby club was business. The club’s improved financial position was a necessary and intermediate step to the only purpose of boosting the taxpayer’s finances.

The Court of Appeal judge described the company’s arguments as “beguiling” but added that “courts… never wavered from the proposition that the business purpose must be the sole purpose”.

In the instance there were two purposes...