In Interfish Limited V HMRC [2013] UKUT  0336 the Upper Tier Tax Tribunal rejected an appeal by Interfish Limited that payments it made to Plymouth Albion rugby club as sponsorship were wholly and exlusively incurred for the benefit of the company.

Interfish Limited is a processing company based in Plymouth. Over the course of the last few years the company has donated over a million pounds to provide financial support its local rugby club Plymouth Albion. 

Cash was donated by Interfish to the club at different times, firstly it was used to prop up the club financially and then specifically to purchase higher quality players. Mr Colam, its managing director had already acquired shares in the club and was able to assert influence at board level. This also assisted the club. 

Mr Colam in giving evidence at the original hearing before the First Tier Tribunal said that making the payments to Plymouth Albion was beneficial to Interfish in various ways, as well as providing visible promotion he also described the Club as ‘one of the most, if not the most, influential business meeting place in Plymouth’. 

Mr Colam got to know, amongst other people "on the best table" at events and functions there, a Nat West bank manager who served on the club's board. The Nat West subsequently lent funds to Interfish, when other banks had already turned the company down. Mr Colam said that he felt that his company’s involvement with the club had “opened doors’ within NatWest and the Plymouth business community.”   

In short Interfish accrued significant but immeasurable benefits as a sponsor, but were these a commensurate return on £1.2 million?

The upset

The FTT Judge did not concur with Mr Colam’s views. For example, he thought that it was “unrealistic to assume that the National Westminster credit committee were influenced to fund an unduly risky venture because Interfish was the benefactor of Plymouth Albion Rugby Club.” 

He found that advertising could have been obtained at the Club’s published rates for about £10,000. Although, it was noted that reliance is also placed on the dictum of Lord Reid in Ransom v Higgs 50 TC 1 at 82F that “if a trader is actuated by none but commercial motives, the Crown cannot merely say he has paid too much”. 

The competing purposes of the payments appeared to be achieving benefits for Interfish and furthering a private interest in the Club of Mr Colam’s. However, the FTT and UTT judge focused on who really benefited from certain payments made by Interfish which were applied directly by the club to purchase players. They considered that these specific payments did not meet the requirement of ‘wholly and exclusively ... for the purposes of the trade’ a requred by s.74 ICTA 1988 (now s.54 CTA 2009). The payments benefitted the club, so there was duality of purpose.

Editorial comment: sponsorship or patronage?

The arrangement continued over the years and payments were designed to cover specific items of expenditure, such as the purchase of players. This appears to have tripped things up as this goes beyond the normal role of sponsors, and is more akin to patronage. Presumably if Interfish had just made smaller payments and had no influence on the way that the club used them there may have been a different result. There is a fine balance to be had in corporate sponsorship as Interfish were upset to hear that another taxpayer, Soutwest Communications Group had been allowed a deduction for £300,000 odd of sponsorship payments made to Exeter Chiefs, see What can I claim? Sponsorship.