Interfish Ltd v Revenue And Customs

Expenditure is deductible only where the taxpayer’s trade is its sole purpose under section 74(1)(a) of the Income and Corporation Taxes Act 1988. A genuine non-trade purpose remains relevant even where it is subordinate, intermediate or intended to achieve an ultimate business advantage. The business purpose cannot be treated as predominant so as to satisfy the statutory requirement. An incidental result, necessarily inherent in an otherwise trade-purposeful activity, may be disregarded, but substantial financial support for another organisation is a separate purpose. The Court therefore rejected the deduction of payments made both to support a rugby club and to secure trading benefits.

Interfish Ltd appealed against the Upper Tribunal’s decision, reported at [2013] UKUT 0336 (TCC), upholding the First-tier Tribunal’s refusal to allow corporation tax deductions for payments made to Plymouth Albion Rugby Club.

The tribunals found that the payments had two purposes: improving the club’s financial position and securing favourable treatment that would assist Interfish’s trade. The central issue was whether the first purpose could be treated as merely intermediate or subordinate to the ultimate business purpose, so that the statutory requirement of exclusive trade purpose was satisfied.

Appeal dismissed. Lord Justice Moses gave the leading judgment. The Master of the Rolls and Lord Justice Patten agreed.

1. The First-tier Tribunal had found two purposes for the payments: improving Plymouth Albion’s financial position and obtaining trading benefits for Interfish. Section 74(1)(a) required the expenditure to be incurred wholly and exclusively for the purposes of the trade. The requirement was not satisfied merely because the trade purpose predominated. This followed the principles stated in Bentley Stokes and Lowless v Beeson [1952] 33 TC 491 and Mallalieu v Drummond [1989] 2 AC 861.
2. The argument that the club’s financial support was only an intermediate purpose was rejected. The court’s task was to identify the purpose or purposes being pursued. A genuine non-trade purpose did not disappear because it was a means of achieving an ultimate business objective. The reasoning in McKinley v Arthur Young McClelland Moores and Co [1990] 2 AC 239 was consistent with that conclusion.
3. Bentley Stokes and Lowless v Beeson did not establish a rule that a subordinate purpose could be ignored. It concerned business entertainment where hospitality was an unavoidable element inherent in the activity, rather than a separately pursued purpose. The decision therefore had to be confined to that situation.
4. An incidental effect may be disregarded where the sole purpose is to serve the trade. The payments in the present case could not be so characterised. Supporting the rugby club’s substantial financial needs was a genuine and distinct purpose.
5. The court did not analyse further the summary of the authorities in Vodaphone Cellular Limited v Shaw [1997] 69 TC 376, since it had already been considered twice below. The appeal was dismissed.

1. Court of Appeal (Civil Division) dismissed Interfish Ltd’s appeal.
2. Upper Tribunal (Tax and Chancery Chamber), [2013] UKUT 0336 (TCC), upheld the First-tier Tribunal’s refusal of the deductions.
3. First-tier Tribunal (Tax Chamber) found that the payments had both a trade purpose and the purpose of improving the rugby club’s financial position, and disallowed the deductions.