Are the costs of an America’s Cup team campaign tax deductible in the UK? It’s a ‘trade’: but is it ‘carried on on a commercial basis’ or ‘with a view to realization of profit’?

This is the (topical) question that has just been considered, and answered, by the UK’s First Tier Tribunal (Tax Chamber) in a Ruling released on 3 May 2017, in the case of Sir Keith Mills & Team Origin LLP v HMRC [2017] UKFTT 378 (TC).

The introduction to the Tribunal’s Ruling sets the scene as follows:

TeamOrigin LLP was an entity set up by Sir Keith Mills in relation to the America’s Cup – the prestigious and long-running international sailing competition. Under the auspices of TeamOrigin LLP, Sir Keith put together a sailing team which was to participate in and hopefully win the America’s Cup, and which would also earn income by way of sponsorship, merchandising, and hosting rights. This appeal concerns an appeal by TeamOrigin LLP and a joint reference by Sir Keith Mills and HMRC which are relevant to treatment of losses made by TeamOrigin LLP as regards both TeamOrigin’s and Sir Keith’s income tax position namely:

(1)   Were the activities of TeamOrigin LLP a “trade” (marketing the team’s connection to the America’s Cup by earning sponsorship, and if the cup was won from hosting income and other income such as merchandising)? Or, were the activities, as HMRC argue, in aid of Sir Keith’s personal ambitions to bring the America’s Cup home minimising the cost through raising sponsorship and other income and where, if that could done at a profit, that would simply be a bonus. That issue concerns both TeamOrigin and Sir Keith.

(2)    If there is a trade there is then the issue of whether the trade was carried on “on a commercial basis” and “with a view to the realisation of profit” for the purposes of s66 Income Tax Act 2007 – these secondary issues are only relevant to Sir Keith.

(3)   The amounts of losses were as follows:

(a)     2007/8: £9,499,520.

(b)   2008/9: £6,462,338.

(c)    2009/10: £6,851,869.

(d)   2010/11: £9,429,975.

While the tribunal is not infrequently called upon to consider whether loss relief provisions such as those in issue apply where it is maintained that the LLP is part of a tax avoidance scheme we should emphasise at the outset that this is not one of those cases. There is no suggestion in this case that the affairs of the LLP were in any way structured so as to avoid tax”.

The Tribunal’s conclusions, on the questions referred to it, were as follows:

Our decision is:

(1)   Trade: The appellant was carrying on a trade in each of the relevant periods.

(2)   Commercial basis: The trade was not carried on on a commercial basis in each of the periods. (This is on the basis of the wider test apparent from the UT’s decision in Seven Individuals).

(3)   With a view to realisation of profit: The trade was not carried on with a view to realisation of profit in any of the relevant periods.”

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