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HMRC internal manual

Business Income Manual

Wholly and exclusively: case law: subscriptions and donations

S34 Income Tax (Trading and Other Income) Act 2005, S54 Corporation Tax Act 2009

Remains a question of purpose

Donations and subscriptions are only allowable if they are incurred for the purposes of the trade and for no other reason. However, many subscriptions and donations are made from motives that are too general or personal to justify a deduction. For more on donations, see BIM37510.

Where only part of the subscription is made for the purposes of the trade, the question then arises as to how much is deductible. This was considered in the case of Lochgelly Iron and Coal Co Ltd v Crawford [1913] 6 TC 267 (see BIM24805). The company subscribed to the Fife and Clackmannan Coalowners’ Association. The Lord President explained that the approach to follow in such cases was to identify those expenses incurred by the association which, had they been incurred by the taxpayer, would be deductible (see the foot of page 277):

`… it became apparent that some of these purposes might be things which if charged in the individual account of the drawer would be a proper deduction as being an expense with a view to earning profits, whereas others might not.’

Subscriptions are therefore allowable to the extent that if the traders had themselves incurred the expenses, those expenses would have satisfied the requirements for deduction.

In practice such an approach can lead to considerable time and effort spent in dissecting relatively small amounts in the accounts of the body to which the subscription is made. Accordingly HMRC has established arrangements whereby subscriptions to bodies that have entered into the arrangement are allowed as a deduction from the profits of the trade. Equally, payments made by such bodies to their members are taxable receipts. The arrangements are described in more detail at BIM24800 onwards.

In Lochgelly Iron and Coal Co Ltd v Crawford [1913] 6 TC 267, the dispute centred on three classes of expense incurred by the Fife and Clackmannan Coalowners’ Association. These were:

  • the costs of a conciliation board to avoid disputes between owners and workers - costs allowed. The court held that the board was ‘a machinery by which disputes between the workmen and the employer may be settled, and by that means expenses kept down and more profits earned’
  • the subscription to the Mining Association of Great Britain - costs disallowed. The Mining Association was held to be lacking in ‘that character of particular service which I think is prominent in the Conciliation Board’
  • experiments with coal dust undertaken to inform government legislation - costs disallowed. The court held ‘It was a voluntary and very proper act of the Company….but not an expense they undertook for the purpose of earning more profit that or any other year’

In other subscription cases, a deduction was allowed for the costs of a subscription to an association whose object was:

  • to keep prices up (on the grounds that price-fixing is a part of selling and selling is an important part of trading, see Guest Keen & Nettlefolds Ltd v Fowler [1910] 5 TC 511)
  • to provide mutual insurance to cover liability for compensation arising out of fatal accidents to workmen (on the grounds that they were in effect insurance premiums to meet what would be allowable costs, see Thomas v Richard Evans & Co Ltd [1927] 11 TC 790)

In general, for cases where the HMRC arrangement does not apply, the trader must show the extent to which their contributions, subscriptions or donations to trade and other bodies represent money expended wholly and exclusively for the purposes of their trade.