Here is a case which emphasises points about pre-planning for tax purposes. It may also be one for legal philosophers!
In the recent case of G4S Cash Solutions (UK) Ltd v CIR, the Courts followed the old case of CIR v Alexander von Glehn and held that payments of fines should not be allowed as tax deductible.
So far, so good. It even sounds sensible as public policy: but –isn’t there a ‘but’ in tax matters – the fine in Alexander von Glehn was for ‘collaborating with the enemy in time of war’; maybe many business owners may distinguish this from parking fines incurred by getting armoured cash delivery vans close to shops/banks to protect employees and the public from extra risk of armed robbery, but by doing so infringing parking regulations. The statutory fines in the G4S case were for parking infringements.
The Courts accepted:-
- It made sense (and was accepted by the police) to minimise the time/distance that the person delivering the cash had to spend outside the van.
- G4S owed a duty of care to their staff, customers and the general public, so parking close by, even in crowded shopping centres made sense. Thus, health and safety law was to a degree in conflict.
- Parking infringements were not on a par of severity with ‘collaborating with the enemy’.
Nevertheless, the Courts decided that it was inappropriate to grant a tax allowance for the payment of statutory fines, so G4S lost out on a substantial tax relief to what they had generally seen as an occupational hazard. Interestingly, G4S did ‘advance deals’ with some Councils whereby in exchange for a lump sum in advance, they got an agreement that the parking wardens would not issues tickets for certain G4S parking infringements. These were agreed to be tax deductible, showing that a different structure can lead to the same commercial end, but in a more tax efficient manner.
In the G4S case the First Tier Tribunal quoted the judge in McKnight v Shepherd as an illustration of how the tax picture may be altered by minor distinctions. Mr Justin Lightman said, “The authorities reveal what a fine line may need to be drawn between what is within and what is outside the trader’s profit earning activities and there are to be found subtle distinctions not immediately obvious to minds of mere ordinary intelligence”.
Lessons to be drawn:
- This case could be a rich earner for HMRC with tax, interest and penalties falling on the multitude of delivery firms set up to provide services in these days of internet shopping. No doubt a number of them will face similar traffic fines and treat them as an incidental cost of doing business.
- Forewarned is forearmed, so checking future accounts for fines etc., and then adding them back, would seem prudent. This is unlikely to be the outcome desired by the business, but HMRC are getting stricter with imposing penalties on even ‘technical’ mistakes.
- Advance thought and planning can help the same commercial ends be achieved – with a better tax outcome.