BIM43101 - Specific deductions: crime (expenditure involving): introduction

Before 11 June 1993, expenditure involving crime: criminal payments, bribes, etc were allowable if they satisfied the first two bullet points in BIM43100. FA93 introduced specific rules to deny relief. Before the 1993 legislation, tax relief was not affected if the making of a payment was itself a criminal act by the payer. Nor was relief necessarily denied to a person who made payments because of criminal threats.

Restrictions on tax deductions were introduced from 1993 and the scope of the restrictions was extended in FA02. Relief is denied for two kinds of payment.

• ICTA88/S577A (1) applies to certain payments the making of which is itself a criminal act by the payer. Examples are payments for drugs or illegal arms, payments to terrorists and bribes to win contracts. Most expenditure incurred on or after 11 June 1993 is caught. FA02/S68 (incorporated at ICTA88/S577A (1)(b)) extends the scope of the legislation to cover certain payments made outside the UK and applies to expenditure incurred on or after 1 April 2002.
• ICTA88/S577A (1A), enacted in FA94, applies to payments made because of blackmail even though the payer does not commit an offence. An example is a payment to a gangster for ‘protection'. Expenditure incurred on or after 30 November 1993 is caught. The extension made by FA02 does not apply to Section 577A (1A).

The bar on relief applies to the computation of profits or gains under Schedule D (subsection 1) and to relief for management expenses of companies (subsection 2). For Schedule A expenditure see BIM43105.

These changes reflect Parliament’s wish to stop indirect subsidies to criminal activities through the tax system and to encourage people not to submit to extortion.

Handling

This legislation raises sensitive issues. Please note particularly the handling advice throughout and in particular:

• for cases within ICTA88/S577A (1) at BIM43155,
• for cases within ICTA88/S577A (1A) at BIM43185.