Chapter BIM38500

Record NumberBIM38500
Published date22 November 2013

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

Introduction and layout of guidance

The courts have considered many cases where the issue has been the deductibility of a fine, a penalty or damages. The statutory test under S34(1)(a) Income Tax (Trading and Other Income) Act 2005 for unincorporated businesses and S54(1)(a) Corporation Tax Act 2009 for companies is whether the expense was incurred wholly and exclusively for the purposes of the trade, profession or vocation. This involves mainly factual issues and the importance of establishing the facts before entering into argument cannot be overstressed.

Where a penalty is intended as punishment then it will not be allowable on the rationale set out by Lord Hoffmann in McKnight v Sheppard [1999] 71 TC 419 (see...

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