Tax deductions for commercial penalties

In McLaren Racing Ltd v HMRC TC/2010/6733 the First-tier Tribunal departed from established principle when allowing a tax deduction for a fine of £32m for industrial espionage.

A specific deduction in computing a trader’s taxable profits is not often discussed in prime time on Radio 4. When Today considered the First-tier Tribunal’s decision to allow a deduction to McLaren for a misconduct fine the note of incredulity from John Humphries was well justified.

The Federation Internationale de L’Automobile is both the regulator and the commercial owner of Formula One and contracts with its teams. The McLaren chief designer Mr Coughlan was provided with detailed Ferrari plans and information by a Ferrari employee. After High Court proceedings ...