McLaren £49m 'cheat' fine is tax deductible

[grober]

You got to admire the brass balls of these guys- or should that be carbon fibre balls. McLaren has successfully argued that their £49m 'cheat' fine is legitimate tax deductible expense as part of their business. At this time not sure if HMRC is going to appeal it or not? BBC News - Today - McLaren £49m 'cheat' fine is tax deductible

 

[Dryce]

You got to admire the brass balls of these guys- or should that be carbon fibre balls. McLaren has successfully argued that their £49m 'cheat' fine is legitimate tax deductible expense as part of their business. At this time not sure if HMRC is going to appeal it or not? BBC News - Today - McLaren £49m 'cheat' fine is tax deductible

It's not a statutory charge. Formula 1 is a business.

It's a charge imposed by one business organisation on another. So it's a business expense.

The recipient organisation (FIA) should be liable for tax on it as income.

Now go figure when a football player or other professional sportsperson is 'fined' by their employer or sports body do they pay tax on the income lost?

 

[stevieb15]

It's not a statutory charge. Formula 1 is a business.

It's a charge imposed by one business organisation on another. So it's a business expense.

The recipient organisation (FIA) should be liable for tax on it as income.

Now go figure when a football player or other professional sportsperson is 'fined' by their employer or sports body do they pay tax on the income lost?

I presume they do, if taxed as an individual, as its not income "lost" and the fine as such should be paid out of nett income.

 

[grober]

Interesting legal conundrum all the same. You sign a business agreement and as part of that you contract to behave according to some "rules" be it car construction fuel used etc etc . If you are deemed to have "stepped outside" these rules and indulge in behaviour not sanctioned by the agreement you are fined according to the terms of the contract you signed and the interpretation of the sport governing body . This is OK so far till the tax issue arises. NOW if the behaviour "indulged in" was outwith the terms of the contract it could be argued that the behaviour was "not business" in terms of the contract it was another form of activity. [ industrial espionage, stealing, bad sportsmanship, naughtiness, spying, a bad boy done it and run away---- whatever you call it] it wasn't " business" Now this "activity" gave rise to a fine which stemmed from a business contract true but the activity per se was "not businesss" as it was not covered by the contract and thus not a "legitimate" expense. Case might turn on whether the " activity in question " was specifically mentioned in the rules and thus might be said to form part of the contract? Evidently wasn't a unanimous judicial decision but casting a vote situation.

 

[Dryce]

This is OK so far till the tax issue arises. NOW if the behaviour "indulged in" was outwith the terms of the contract it could be argued that the behaviour was "not business" in terms of the contract it was another form of activity.

Couple of points.

Firstly if it's not in the contract and there is a dispute that involves subsequent payment from one part to another then that is still *business*. the relationship between the parties is a business one and the payments transferred between them are part of that business relationship.

Secondly we probably don't know what is in the contract between the teams and the body in control of their sport. But think about it for a moment. They probably do have something in that contract that allows then to be financially sanctioned. So it is contractual.

 

[Rory]

The term "tax deductible" a bit misleading - it sounds like they get something back, but isn't it simply that they don't pay corporaton tax on that amount.

 

[grober]

The broadest definition of legitimate expenses appears to be that an expense must be "ordinary and necessary" for your trade or profession. Mclaren's "defence" seemed to hinge round the "we [ F1 teams] are all a bunch of thieving b*st*rds and we- Mclaren are no different from any of the others" stance. While this might be true it's at present an unfounded allegation and surely moves the entire argument into the " if he's having the battery I'm havin' the tyres" area of tax interpretation?

 

[Stratman]

It could meet the definition of necessary in that if they hadn't paid it they wouldn't be racing.

 

[Dryce]

The broadest definition of legitimate expenses appears to be that an expense must be "ordinary and necessary" for your trade or profession. Mclaren's "defence" seemed to hinge round the "we [ F1 teams] are all a bunch of thieving b*st*rds and we- Mclaren are no different from any of the others" stance. While this might be true it's at present an unfounded allegation and surely moves the entire argument into the " if he's having the battery I'm havin' the tyres" area of tax interpretation?

That's extrapolating things too far.

It's a charge placed in them by a company or organisation they do business with. It's not a *statutory* charge or fine. On that basis it's a business payment that allows them to conduct business.

On that basis the receiver of the payment is liable for taxation on it. So tax is due somewhere along the line. So you might ask the question as to whether the FIA (or whatever entity that ends up with gthe money) is taxed on any profit from the charge.

 

[Shude]

That's extrapolating things too far.

It's a charge placed in them by a company or organisation they do business with. It's not a *statutory* charge or fine. On that basis it's a business payment that allows them to conduct business.

On that basis the receiver of the payment is liable for taxation on it. So tax is due somewhere along the line. So you might ask the question as to whether the FIA (or whatever entity that ends up with gthe money) is taxed on any profit from the charge.

I've worked for a few outsourced businesses over the years and they are forever charging each other "financial penalties" for breaches of contract, delays etc and I can't imagine there is any corporation taxes being paid on money they had to pay out. That's simply "operating costs" to them.