G4S Cash Solutions (UK) Ltd
| Jurisdiction | UK Non-devolved |
| Judgment Date | 07 April 2016 |
| Neutral Citation | [2016] UKFTT 239 (TC) |
| Date | 07 April 2016 |
| Court | First Tier Tribunal (Tax Chamber) |
Judge Anne Scott, Member; Elizabeth Bridge
Alun James, Counsel instructed by Herbert Smith Freehills, appeared for the Appellant
Chris Stone, Counsel, instructed by the General Counsel and Solicitor to HM Revenue and Customs, appeared for the Respondents
Corporation tax – Parking fines – Whether allowable deduction in computing profits to be charged to corporation tax – Held no – Appeal refused.
[1] This appeal is a consolidated appeal by the appellant of
i) an appeal of two discovery assessments issued by HMRC in respect of the corporation tax computation for the accounting periods ending 31 December 2007 and 31 December 2008 in the sums of £158,170.20 and £157,711.28 plus interest; and
ii) an appeal in respect of two closure notices issued by HMRC in respect of the appellant's accounting periods ended 31 December 2009 and 31 December 2010. Those closure notices amended the appellant's returns by £124,679.24 and £139,667.08 respectively.
[2] The amounts assessed by those assessments and notices represent the additional corporation tax payable if amounts accrued in the appellant's accounts for those periods in respect of penalty charge notices (parking fines or “PCNs”) and deducted in computing its profits for corporation tax purpose are, as HMRC assert, not deductible under
i) in relation to the periods ending 2007 and 2008 either section 74(1)(a) or (e) of the Income and Corporation Taxes Act (ICTA) 1988; and
ii) in relation to the periods ending in 2009 and 2010, section 54 of the Corporation Tax Act 2009.
[3] Further, there are still open assessments for the accounting periods ended 31 December 2005 and 2006 and the accounting periods ended 31 December 2010 onward. There are therefore very significant sums of money at stake.
[4] Although the issues are complicated, the grounds of appeal are straightforward, namely
a) the payments made in respect of the relevant PCNs were made wholly and exclusively for the purposes of the appellant's trade or alternatively they are a loss arising out of or connected with the trade,
b) in the particular circumstances of that trade, public policy does not dictate that a deduction in respect of those payments should be denied,
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c) the appellant does not dispute the existence of a case law principle that fines and penalties are not deductible as a general presumption but contends that there has to be an exception where, as here, there is an entirely exceptional case,
i) The trade in question is of social utility and must be carried on by someone,
ii) The trade cannot be carried on safely without parking infringements being incurred,
iii) The appellant seeks as an operational matter to ensure that parking infringements are avoided where possible and only occur where otherwise safety of employees and the general public would be compromised,
iv) The appellant operates best practice and is socially responsible,
v) Procedures are in place to ensure that no deduction is sought for tax purposes where parking infringements occur unnecessarily, and
vi) Parking infringements are a civil matter not a criminal matter.
[5] Conversely HMRC argue that the assessments and closure notices have been issued on the basis that HMRC take the view that the sums expended on paying PCNs are not deductible in calculating the appellant's profit for the purpose of corporation tax, because PCNs are statutory fines imposed on the appellant for a breach of the law by the drivers and not for actions “in the course of the appellant's trade”.
Specifically,
a) the PCNs were incurred by the appellant because its vehicles parked in a prohibited place or in a prohibited manner and the consequential PCNs were issued and payable under statute. Accordingly the PCNs are not a deductible expense or loss in terms of the relevant legislation, and
b) it has been well established in the UK for almost 100 years and subsequently followed in many commonwealth jurisdictions that a fine imposed by statute for a breach of the law is non-deductible in calculating profits for the purposes of corporation tax. All statutory fines imposed for a breach of the law are non-deductible notwithstanding the lack of “moral obliquity” or other mitigating factors such as the social utility of the business or public policy.
[6] The parties stated that quantum is not in dispute for the purposes of this appeal.
[7] It was agreed by the parties that the same issue arises in relation to the appellant's corporation tax for all of the accounting periods from and including that ending 31 December 2005. HMRC invited the Tribunal to reach a decision in principle that will apply to all of those accounting periods.
[8] We had the benefit of an extensive Statement of Agreed Facts but that relates only to what is described as the relevant period being the period 1 January 2007 to 31 December 2010 (“the relevant period”). Of course that is the period, which is the subject matter of the decisions, which have been appealed to the Tribunal. That was supplemented by
a) a detailed Note by the appellant on the findings of fact that the appellant stated that the Tribunal should make, and
b) a detailed summary of the evidence by HMRC.
[9] HMRC stated in the latter that, as their primary case is to the effect that because the PCNs are statutory fines imposed for a breach of law, “the Tribunal does not, on the binding authorities, need to go further in its analysis of the facts of this case than stating that the fines were imposed by statute for a breach of the law; the appellant cannot distinguish its factual case, in particular, by reference to the close nexus between the fines, and its business, as well as its concerns for the safety of its drivers and staff.”
[10] We disagree. We do, however, agree with HMRC when they go on to say that many of the background facts are agreed between the parties. However, they take the view that that is of very limited assistance to the Tribunal in reaching its conclusions. Again, on that latter point, we disagree. Sadly, the matter is not as simple as that. At the heart of the appellant's case is the assertion that all PCNs, for which a deduction is claimed, are incurred because of the overriding priority of safety and that they are unavoidable. That is clearly a question of fact, or not. In our view, there are also a number of other issues.
[11] In correspondence dated 4 June 2013, the appellant argued that the appeal raises questions of both fact and law and specifically that the Tribunal would have to make findings in fact as to whether
a) the payments were made wholly and exclusively for the purposes of the appellant's trade, and
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b) on the particular facts and circumstances, public policy dictates that a deduction for those payments should be denied
and in so doing the Tribunal would be required to consider
i) the nature of the appellant's trade,
ii) the way in which the appellant conducts its trade having regard to the factual issues regarding parking,
iii) whether the appellant's actions accord with “best practice”, and
iv) public safety issues arising in connection with the operation of the appellant's trade.
[12] We considered the totality of the extensive evidence before us and decided that it was both necessary and prudent to consider all of the evidence and find facts accordingly. This appeal, like so many others turns on its own facts. Once we found the facts we turned to the legal principles involved.
[13] In addition to the Statement of Agreed Facts and commentaries thereon, we had the witness statements with appendices of, and heard evidence from, Peter Sewell and James Kelly. We also had a bundle of correspondence between the appellant, HMRC and the Tribunal.
[14] Described as Authorities (see paragraph 187 below) we also had three bundles, which included documentation, extracts from legislation and other material that supported a summary document submitted with the appellant's Skeleton Argument giving background as to PCNs, traffic regulations etc.
[15] Mr Sewell was Employee Protection Manager – the National Health and Safety Manager – of the appellant from 2001 until 30 May 2014.
[16] On 3 February 2014, the Tribunal directed that the evidence of Peter Sewell be heard in private and that the disclosure or publication of the witness statement and/or exhibits was prohibited. The rationale for that Direction was to ensure that aspects of the appellant's working practices in regard to safety did not enter the public domain. We recognise the importance of that and have referred to the witness statement and exhibits, only where appropriate, and to that limited extent have varied the said Direction
[17] Mr Kelly is Chief Executive of the British Security Industry Association (“BSIA”).
[18] On 24 June 2014, in regard to Mr Kelly's evidence, the Tribunal endorsed a Direction in the same terms as that relating to Mr Sewell as set out in paragraph 16 above. As is the case with Mr Sewell we have varied that Direction but only to the extent that we have referred to the witness statement and exhibits where appropriate.
[19] On 22 April 2014 Judge Raghavan directed that:
The expert report of James Kelly be accepted as a witness statement, and that the application that it be accepted as expert evidence is to be held over to the substantive hearing
[20] In terms of rule 15(2) of Tribunal Procedure (First-tier Tribunal) (Tax Chamber) Rules 2009 (“the Rules”) the Tribunal has power to admit expert evidence. However, it is common ground between the parties that although the Tribunal has that power it should, ordinarily, have regard to the Rules applicable in the High Court (the Civil Procedure Rules (“CPR”)) and exercise that power only where expert evidence is reasonably required to resolve the proceedings. The CPR provide...
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Scottishpower (SPCL) Ltd and Others
...unintentional wrongdoing, notwithstanding that the wrongdoing was contractual rather than unlawful. [98] In G4S Cash Solutions (UK) Ltd [2016] TC 05015 which concerned the deductibility of parking fines, the FTT said [241]: The trade is not that of breaking the law. The breach of the law is......