McLaren Racing Limited v The Commissioners for Her Majesty's Revenue & Customs, TC 02278
| Jurisdiction | UK Non-devolved |
| Judge | Charles HELLIER |
| Judgment Date | 07 September 2012 |
| Neutral Citation | [2012] UKFTT 601 (TC) |
| Respondent | The Commissioners for Her Majesty's Revenue & Customs |
| Appellant | McLaren Racing Limited |
| Reference | TC 02278 |
| Court | First-tier Tribunal (Tax Chamber) |
[2012] UKFTT 601 (TC)
TC02278
Appeal number: TC/2010/6733
Corporation Tax – computation of trading profits – s 74 TA 1988 deductibility of
penalty imposed by motoring organisation and not by statute – appeal allowed
FIRST-TIER TRIBUNAL
TAX CHAMBER
MCLAREN RACING LIMITED Appellant
- and -
THE COMMISSIONERS FOR HER MAJESTY’S Respondents
REVENUE & CUSTOMS
TRIBUNAL:
JUDGE CHARLES HELLIER
NICHOLAS DEE
Sitting in public at 45 Bedford Square, London WC1B 3DN
on 12-15 March 2012
Alun James instructed by KPMG LLP for the Appellant
Akash Nawbatt and Christopher Stone, instructed by the General Counsel
and Solicitor to HM Revenue and Customs, for the Respondents
© CROWN COPYRIGHT 2012
DECISION
Introduction
1. This appeal raises the question as to when and whether penalties incurred by
a trader may be deductible in computing its taxable trading profits.
2. In 2007 the Appellant (“McLaren”) was required by the Federation
Internationale de L’Automobile (the “FIA”) to pay some £32 million and in
addition to suffer a reduction in its gross income of some £34 million because,
through its employees and agents, it had possessed and in some way used
proprietary information belonging to Ferrari, and had thereby breached the rules
of the FIA’s International Sporting Code (the "ISC") to which McLaren was
contractually bound. This penalty was not imposed by any statutory provision
but under provisions to which McLaren was bound as a participant in Formula
One racing.
3. HMRC do not dispute that the reduction in McLaren’s gross income reduces
its taxable profits to that extent, but argue that the £32m penalty was not
deductible.
4. We had the misfortune to disagree about the deductibility of this penalty. Mr
Hellier considered that it was deductible, and Mr Dee that it was not. Where a
tribunal consisting of two members is not unanimous, regulation 8 of the First
tier Tribunal and Upper Tribunal (Composition of Tribunal) Order 2008 SI
2008/2835 gives a casting vote to the presiding member. Mr Hellier exercised
that vote in favour of allowing the appeal.
5. In this decision, the section “Facts” reflects the views of both of us; the
section on the Law and the first part of the “Discussion” section represent Mr
Hellier’s views; Mr Dee’s views are set out in the final part of that section.
The statutory provisions and the authorities
6. Section 74(1) TA 1988 provides that in computing trading profits no sum
shall be deducted in respect of:
"(a) any disbursements or expenses, not being money wholly and exclusively
laid out or expended for the purposes of the trade or profession; ...
"(e) any loss not connected with or arising out of the trade or profession."
7. HMRC contend that the £32 million paid by McLaren falls within one or
both of these prohibitions.
8. These separate prohibitions played mixed roles in the cases to which we
referred.
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