Taxman Loses Promotion Costs Challenge

It clearly irritates some tax inspectors in HM Revenue and Customs (HMRC) that business promotional expenditure can be in some way connected with an activity which is enjoyed by the management of the business. Such expenditure, when substantial, is frequently queried in tax investigations.

In a recent case, HMRC took a taxpayer who runs a coach business to task over promotional expenditure claimed in his accounts as a business expense. The coach operator had purchased a rally car which was painted in his business livery and which he used in rallying competitions, claiming the cost as a deduction from business profits.

HMRC attacked the deduction claim on the grounds that the expenditure was not ‘wholly and exclusively’ for the purposes of the business. The Special Commissioners, however, found that the purpose of the expenditure was the promotion of the business and the expenditure was therefore allowable.

It remains to be seen whether HMRC will appeal the decision. If not appealed, it represents a slight shifting of the goalposts, with regard to this type of expenditure, in favour of the taxpayer.