HMRC Takes The Driving Seat

Racing Flag

Having lost out at the first tier tribunal, HMRC took racing giant McLaren all the way to the upper tribunal to see a judgement in their favour, in a recent tax case.

Back in 2007 a (one can only imagine, disgruntled) former Ferrari engineer passed confidential design and performance information onto McLaren regarding Ferrari’s Formula One cars, which McLaren possessed and in some way used. Upon discovery of this misdemeanour the motor sport governing body, Federation International de L’Automobile, issued McLaren with a £32 million fine for breach of the International Sporting Code.

What business of this is HMRC’s, you ask? Well, McLaren deducted this fine as a trading expense, thus receiving tax relief and HMRC disputed this on the basis that the fine was not wholly and exclusively incurred in the performance of McLaren’s trade. The first tier tribunal found that the penalty was a business expense as it was a result of contractual obligations McLaren entered into for the purposes of its trade.

The upper tribunal, however, overturned this original judgement and declared that obtaining information by breaching regulations did not class as normal business activity and therefore the ‘wholly and exclusively’ criteria was not satisfied. Thus, the fine was not an allowable deduction.

The lesson? All might be fair in love and war – but that doesn’t make it tax deductible!

Please note: This article is a commentary on general principles and should not be interpreted as advice for your specific situation.

Image courtesy of Rawich at FreeDigitalPhotos.net

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