In The Crown and Cushion Hotel v HMRC [2016] TC05492 the First Tier Tribunal (FTT) allowed a deduction for corporation tax for payments made sponsoring the director's daughter’s motor sports activities.

To be an allowable deduction, expenses must be incurred wholly and exclusively for the purposes of the trade: CTA 2009 section 54(1)(a).

  • The company was owned by Mrs Powell (the sole director) and her sister.
  • Their father, Mr Fraser, had established the business and was still the driving force behind the company on a day-to-day basis.
  • Mrs Powell’s daughter, was a racing driver who had begun to attract substantial media attention in 2008 at the age of 15.
  • Mr Fraser came to an agreement with Miss Powell’s father that the company would provide her with £160,000 plus VAT annually for four years in exchange for 15% of her racing earnings for 12 years.  
  • Miss Powell would advertise the company’s hotels on her cars and driving overalls as well as attending product launches and giving speeches.
  • The £160,000 spend was commensurate, on a room-by-room basis, with advertising expenditure in previous years.

HMRC denied the deduction, arguing that a purpose of the payments was personal, arising out of natural love and affection for a close family member.

The First Tier Tribunal allowed the appeal, finding that:

  • The word ‘exclusively’ means that if the taxpayer’s object when incurring the expenditure has any purpose other than or additional to the promotion of the business then it is not deductible.
  • The ‘object’ of the expenditure must be distinguished from its effect.
  • It could not be presumed that the existence of the close family relationship between the parties meant that the benefit to Miss Powell in furthering her career was inescapably one of the objects for incurring the sponsorship expenditure.
  • Evidence demonstrated that Mr Fraser’s sole object in the company making the payments was to benefit the company by attracting customers to the hotels.
  • Mr Fraser was not motivated by a desire to further Miss Powell’s racing career and the benefit to Miss Powell was an incidental effect of making the payments.

A tax deduction for the expenditure was allowed.



Case reference: The Crown and Cushion Hotel (Chipping Norton) Limited v HMRC [2016] UKFTT TC05492