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Saturday 13 October 2012

McLaren allowed deduction from corporation tax for governing body fine

The normal principle is that you cannot set a fine against your liability to tax. The public polisy reasons for that rule are not difficult to appreciate. However, McLaren have been permitted to deduct the amount of penalties imposed by the FIA from corporation tax (after they obtained confidential technical information about Ferrari's car) because the penalty was sufficiently "connected with the trade" of the business, and related to "activities so closely associated with mainstream of McLaren's trade" that the judge could not say "that they were not a part of it". The first-tier tribunal's judgment is here.
That is not to say that all civil penalties (as opposed to criminal fines) will be tax-deductible - breaches of competition law may give rise to civil penalties, but I cannot imagine that they could be set against corporation tax liability. In any case, I am surprised that the judge was prepared to hold that the penalties were close enough to McLaren's mainstream business to be allowable: that could be seen as a rather damning view of the way McLaren conduct themselves, which I am sure is not intended.

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