The courts have considered many cases where the issue has been
the deductibility of either a fine, a penalty or damages. The
statutory test under ICTA88/S74 (1)(a) is whether the expense was
incurred wholly and exclusively for the purposes of the trade,
profession or vocation. This involves mainly factual issues and the
importance of establishing the facts before entering into argument
cannot be overstressed.
Where a penalty is intended as punishment then it will not be
allowable on the rationale set out by Lord Hoffman in McKnight v
Sheppard [1999] 71TC419 - see
BIM37965. Where the payment is intended
to provide restitution for damages caused by normal trading
operations then it will be allowable.
The guidance that follows describes a number of the cases
that have come before the courts
| BIM38510 | Compensation for injury to customer (Strong & Co of Romsey Ltd v Woodifield) |
| BIM38515 | Penalty for breach of wartime regulations (CIR v EC Warnes & Co Ltd) |
| BIM38520 | Penalties for infractions of the law are not allowable (CIR v Alexander von Glehn & Co Ltd) |
| BIM38525 | Costs incurred in compromising an action for breach of the law (Cattermole v Borax & Chemicals Ltd) |
| BIM38530 | Cost of libel action (Fairrie v Hall) |
| BIM38535 | Payment to get director to withdraw legal action (G Scammell G & Nephew Ltd v Rowles) |
| BIM38540 | Cost of settling civil action, trade purpose? (Golder v Great Boulder Proprietary Gold Mines Ltd) |
| BIM38545 | Cost of defending charge of breach of contract (Knight v Parry) |
| BIM38550 | Compromise settlement of action by former director (Hammond Engineering Co Ltd v CIR) |
| BIM38555 | Provision for compensation where liability not formally admitted (James Spencer & Co v CIR) |
| BIM38560 | Application of hindsight (Simpson v James) |
