Your business makes lots of deliveries by van to clients and quite often drivers have to park on double yellow lines as there is no available parking nearby. The result is quite a lot of Penalty Charge Notices (PCNs) issued by the local authority or the police. Your drivers are instructed to avoid parking in such locations but they often have no choice if the business is to provide an efficient service to clients. Any chance of getting a tax deduction?
The short answer is no. The long answer is also no as G4S has found out in a lengthy judgement released by a Tax Tribunal in April 2016.
Tax legislation contains no specific prohibition for the deduction of fines so the courts have had to decide from time to time whether any principles apply for deciding whether a tax deduction is available. HMRC argued that the decision made in the Court of Appeal in Alexander von Glehn Ltd gave rise to a principle that:
- the purpose of a fine is to punish a taxpayer and
- the legislative policy behind the imposition of a fine would be diluted if tax relief were given.
G4S did not dispute the existence of this principle but claimed the PCNs they incurred for parking infringements were rather different in character to the penalty incurred in the von Glehn case. In that case the company was fined in the First World War for exporting goods to enemy territory. The fine was £3,000 - a considerable sum then and clearly meant to punish. G4S claimed its PCNs were of a different character from the public policy issues arising from 'trading with the enemy'.
The Tribunal did not agree with G4S. The purpose of the PCNs is to punish the taxpayer. The payment was at least in part a payment to meet its obligation to pay the fines as a consequence of breaking the law rather than being incurred for the purposes of its trade.
Despite this case, there will be instances where a tax deduction is available:
- If PCNs are attached to an employee's car or handed to the employee at the time of the offence and the business pays the fine, a tax deduction will be given to the business but the employee is taxable on the payment as employment income.
- If the 'fine' arises because a car has exceeded the paid for time in a private car park, this is simply an excess charge payable under the terms of the contract made with the car park provider. This will be allowable if incurred 'wholly and exclusively for the purposes of the trade'.