Interfish Ltd v Revenue And Customs

Judgment

Lord Justice Moses:

In three accounting periods between 2003 and 2006, the holding company of a group of companies involved in the fishing industry paid about £1.2 million to Plymouth Albion, one of the largest rugby clubs in the South West. The club was in severe financial difficulties. Although it drew considerable crowds when playing in the Rugby Football Union’s National Division 1 and national cup competition, it needed substantial sums to make up a deficit in its player budget and to improve, amongst other things, its squad of players.

Interfish’s fishing business included fishing, fish processing and wholesaling, and a fish retailing business based in Plymouth. Payments were of benefit to Interfish because they visibly promoted South West Foods and made it easier to obtain bank funding for its expansion.

Judge Nicholas Paines QC, sitting as the First-tier Tribunal (Tax Chamber), found two purposes in the making of the payments. The payments were made in order to improve the financial position of the rugby club and to ensure that those involved in the club would look favourably upon Interfish in ways that would assist its trade (FTT paragraph 47). In its computation of profits for the purposes of Corporation Tax, Interfish sought to deduct the payments made in its accounts under the heading Advertising and Marketing. The First-tier Tribunal and, on appeal, the Upper Tribunal [2013] UK UT 0336 (TCC), held that those disbursements were not deductible because they were not “wholly and exclusively laid out or expended for the purposes of the trade” (s.74(1) of the Income and Corporation Taxes Act 1988).

The provisions in s.74(1)(a) first appeared in the Income Tax Act 1842. Courts have never wavered from the proposition that the business purpose must be the sole purpose. You might have thought, therefore, that once it had been found as a fact by the First-Tier Tribunal that the payments by Interfish had two purposes, that was the end of its appeal. If you had thought that, you had not reckoned with the advocacy of Mr Peacock QC. In beguiling submissions, he accepted that essential proposition but argued that Interfish did, in fact, have only one purpose in making its payments and that was a business purpose. The purpose of improving the financial position of the rugby club was merely a necessary and intermediate purpose on the way to the sole and ultimate purpose of improving the financial position of Interfish (and the FTT had so found –