McLaren took legal action after HM Revenue and Customs (HMRC) disagreed that it could deduct the fine in computing its taxable profits. However, a tax tribunal has now supported HMRC’s view.
HMRC’s Director General of Business Tax, Jim Harra, welcomed the ruling:
We’re very pleased the Upper Tribunal agrees that the fine should not be given tax relief, which supports our view that most fines are not allowable as deductions against trading income.
This case shows that we won’t hesitate to go to court to make sure the right tax is paid.
The £32 million penalty was imposed on McLaren by the sport’s governing body, the Fédération Internationale de l’Automobile (FIA), in 2007 for breaching its International Sporting Code.
A First-tier Tribunal ruled the penalty was tax deductible. However the Upper Tribunal has now supported HMRC’s appeal against that decision by ruling the penalty was not incurred wholly and exclusively for the purposes of McLaren’s trade and so was not an allowable deduction for tax.