Tax Efficient Racehorse Ownership In The Business
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recent case has helped with the guidance concerning
the tax position where a company pays training fees for racehorses.
This case has emphasised the
whole issue of
tax planning around racehorse ownership and costs in companies.
the case of Chepstow
Plant International & Another v Revenue & Customs
 UK FTT 166
(TC) the company financed the training expenses for several
racehorses. HMRC sought to have these
expenses treated as
a benefit in kind to the director in whose name the horses
ran. The director could
demonstrate that he had no
real interest in the horses. For
the director had never actually visited the trainer.
Plant it was held that the director did not have a personal
interest and he
was not receiving a personal benefit in kind and was therefore not
the relevant personal tax and national insurance on the payment by the
tax planning point raised by HMRC is why these
horses were being run in the director’s personal name and not in the
the company? There
are the concerns of
the allowability of the cost for corporation tax and also the potential
in kind for the director. Chepstow Plant
is a positive case for
using racing and the racehorse as a very effective means of advertising
entertaining for a company. The
planning point is that the racehorse should be run in the name of the
Services and Products
order for a business to be able to claim the cost
of the keeping and training of racehorses as an allowable expenditure
purposes it will have to show that the purpose of the expenditure was
advertise the products or services of the business.
Considerations would be what extra business can
be generated and there should be business plans to support this.
The commerciality needs to
be translated into
business projection and cost benefit analysis to the
business. In order to achieve proof
justification there would have to be evidence that the horseracing
is effectively advertising either the product or the
services. It can help if the horse
is named after
either the business or its products.
those old enough to remember Harvey Smith in the 1970s riding horses
name of Japanese hi-fi equipment which sounded unattractive to the show
enthusiast but to the company there was some very high profile
coverage from a very colourful character.
Whereas the television coverage of show jumping has now
to rather obscure channels, the television coverage of racing has still
to keep a strong position. There
terrestrial coverage but there is a dedicated ‘At the Races’ channel
in the Sky package and a separate subscription channel “Racing UK”
high coverage of race meetings.
Effective Analysis Study11
addition to the business plans, the marketing
report and the cost effective analysis study, there should be
recordings in the
Minutes of the business to record the reasoning and the decision to go
with the racehorse expenditure. Such
expenditure could invite an enquiry into the business accounts and
intentions on the part of the
directors at the time of the payment must be fully documented with a
is no doubt that racing has proved to be a very
successful marketing tool for a number of businesses.
The key is being able to prove this to HMRC
and, as always, when HMRC question the tax allowability of the
be able to support all the arguments with evidence and
statistics. Any link into direct sales
is obviously going
to be a positive argument to present to HMRC.
is considerable case law surrounding the
allowability of expenditure on the sponsorship of sports activities.
There is the question of the
director’s personal involvement in the sponsored activity and whether
involvement in the sport was pre-existing the sponsorship.
This is seen as a test of
of the sponsorship arrangement.
pre-existing interest point is raised in the case
of Vodafone Cellular & Others v Shaw 
brings into question the
issue of wholly and exclusively for the purpose of the trade where
given in Executive Network v O’Connor SpC56
at BIM42558. This
leads on to the
question of sponsorship which includes entertaining.
Sponsorship costs can include an element of
hospitality element is
disallowable even if it brings in large future revenues to the business
extremely commercial. Guidance
point is provided in BIM45055 and the disallowability would be looked
ICTA 88 section 577 or ITTOIA section 45.
a planning point, when sponsorship deals include an
entertainment package, the entertaining element which is disallowable
separately identified and the size of any disallowable expenditure
so that this can be added back in a fair and correct way. The
can then achieve
tax allowability. BIM37007
where a single sum is paid for a package that includes both hospitality
advertising then the sum should be apportioned so that the correct
disallowed as an effective way of achieving tax relief on the correct
that HMRC will consider when
looking at the tax allowability of sponsorship are if the sponsorship
generate the sales anticipated and what steps were taken to improve
there should be evidence that
anticipated sales have been achieved and, if not, a documented action
is no doubt that horseracing can generate a commercial
income stream into a business and it is important that valid
expenditure is treated
as a tax allowable expense. Documentary
evidence is always key - details of why the sponsor chose this
or why the decision regarding the racehorse was made.
It could be important to see how the
racehorse ownership or sponsorship is exploited in terms of nationwide
local media, other avenues and point of sale publicity.
Details of the sponsorship must be on the business
website as that is often HMRC’s first point of review.
About the Author
Supplied by Julie
F.C.A. Butler & Co, Bennett House, The Dean, Alresford, Hampshire,
Tel: 01962 735544. Email; firstname.lastname@example.org,
the author of Tax Planning for Farm and Land Diversification (Bloomsbury Professional), Equine
ISBN: 0406966540, and Stanley: Taxation
of Farmers and Landowners (LexisNexis).
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Article Published/Sorted/Amended on Scopulus 2012-06-11 13:12:54 in Tax Articles