McLaren’s FIA Fine Not Wholly and Exclusively for Trade

We wrote previously regarding the First-Tier Tribunal case of McLaren Racing Ltd v HM Revenue & Customs, where the Tribunal found that the fine relating to spying on Ferrari (which amounted to around £34m) was deductible because the act in question was wholly and exclusively for the purposes of trade and no laws were broken.

HMRC appealed the case to the Upper Tribunal who found that the fine had been incurred because McLaren engaged in conduct not in the course of its trade.  The penalty was found therefore to be a disbursement or expense, but not paid wholly and exclusively for the purposes of the company’s trade. It was therefore not an allowable deduction against their profits for corporation tax.

The outcome of the original Tribunal case was somewhat surprising, and this decision therefore appears to be more in line with previous case law.  This is a shame as the First-Tier Tribunal case had suggested that the scope of the “wholly and exclusively” rules might have been wider than previously thought.  Bearing in mind the amount of tax at stake, it is possible however, that McLaren could seek to appeal the decision.