HMRC win their case against G4S to not allow parking penalty fines as a business expense

A recent first tier tax tribunal case between HMRC and G4S Cash Solutions (UK) Limited has provided some clarity on the treatment of parking fines and whether they are an allowable business expense.

The tribunal found that G4S were not allowed to treat their parking fines as tax deductible.

G4S is a huge business that transports cash on behalf of it’s customers and also empties and restocks cash machines all over the country.

The parking fines were in relation to penalty charge notices received from local councils, incurred for contraventions including:

  • loading/unloading in restricted areas
  • stopping on red routes and bus stops
  • parking over footpaths

G4S did not incur penalties from all councils as they had agreements with some local authorities, but not all, including the ten London boroughs.

For the period in question (2008 to 2010) they incurred roughly 10,000 penalty charge notices each year and were treating these costs as allowable business expenses for corporation tax.

Parking Fines

Some of the key arguments that G4S used as to why they should be allowed to claim these parking fines were:

  • They were incurred wholly and exclusively for the purposes of their trade
  • They could not carry on their trade safely without incurring these costs (it was important for safety reasons that the vehicles were parked as closely as possible to the cash machine or client)
  • As a general operational rule they try to ensure parking infringements are not incurred unless they have to be from a safety perspective
  • They have procedures in place to ensure that no tax deduction is sought in circumstances where parking fines have been incurred un-necessarily

HMRC’s key responses to these arguments were:

  • Parking penalty charge notices are statutory fines incurred due to a breach of the law
  • It is an established principle that fines incurred due to a breach of the law are non-deductible in calculating profits for the purposes of corporation tax
  • G4S had in recent years implemented a training and operations programme to help reduce the number of parking fines incurred, which had resulted in a 50% reduction in the number of penalty charge notices being incurred – this suggested that the fines were avoidable.

The first tier tribunal found that although there was some merit to the argument that the fines were incurred as part of their business, they concluded that the penalty charge notices were not an allowable expense for corporation tax because:

  • they were not ‘wholly and exclusively’ for the purposes of the trade
  • they were issued due to a breach in the law, which makes them not tax deductible

Commenting on the outcome, the director general of business tax for HMRC said:

We’ve always said fines incurred for breaking the law are not tax deductible. The tribunal has now established a clear precedent for rejecting any future such claims.”

So if you have incurred a fine or penalty due to breaking the law then this will not be an allowable business expense for your company.

What has been left as a somewhat grey area is the tax treatment of fines issued by private organisations, for example if you are charged an excess parking charge for overstaying in a private car park.

As no law has been broken by doing this – it is purely a commercial agreement and is essentially just an additional parking cost, then it would seem that this is not affected by this tax case and could still be treated as an allowable business expense as long as it is incurred as part of running the business.

However there is still a potential tripping point with this – if a company reimburses a director’s or employee’s personal parking fines (as opposed to fines issued directly to the company), HMRC would deem this to be earnings and treat it as a taxable benefit in kind which causes tax issues on the employee/director and an NI charge on the company.