Are parking fines an allowable business expense?
Parking fines have long caused confusion amongst clients as to what can, and can't, be claimed against their profits. Well, the question as to whether parking fines are an allowable business expense, was further clarified earlier this year in a tribunal between HMRC and G4S.
G4S is a huge company in the security sector and one of their subsidiaries is involved in transporting large amounts of cash to the bank on behalf of private customers and is also responsible for making sure that cashpoint machines are always stocked.
In the course of carrying out its business between 2008 and 2010, G4S incurred about 10,000 penalty charge notices (PCNs) per year issued by local councils. Amongst other transgressions, G4S drivers had been found to have parked over footpaths, stopped on red routes and bus stops and parked in loading and unloading bays.
Now G4S had agreements in place with certain councils which allowed them to park in certain restricted areas. But where there were no agreements in place, the local authorities obviously issued PCNs with glee!
With such a huge amount of penalties, G4S obviously wanted to claim these tickets as an allowable business expense against their corporation tax bill.
G4S tried to argue that:
- the fines were incurred wholly and exclusively for the purposes of their trade
- their staff needed to park in certain restricted areas for safety reasons eg to be near to cash machines
- they tried to ensure their staff parked safely and legally where possible
- they disallowed any parking fines which they felt were incurred unnecessarily
- although parking fines aren't usually an allowable business expense, these should be allowable in exceptional circumstances
The tribunal disagreed with G4S and found in favour of HMRC. Amongst other things the tribunal pointed out that:
- G4S had implemented a training programme since 2010 which has halved the parking tickets received each year.
- G4S had invested time having agreements in place with some local authorities to avoid fines and could have invested more time with other local authorities.
- Incurring the fines was a breach of the law and breaches of law are not allowable deductions when calculating tax.
- G4S had made the commercial decision to incur parking fines.
So the tribunal basically concluded that the fines weren't allowable as they weren't 'wholly and necessarily' for the benefit of the trade and they were breaches of the law which are never allowed.
HMRC were obviously pleased with the result as they have longed maintained that fines incurred as a result of breaching the law are not an allowable business expense deduction.
However this still raises an issue with regards to fines issued by private parking companies. These fines aren't always as a result of a breach of the law and so it may be that these fines are still an allowable business deduction.
And just an added complication: if the company's employees or directors incur a parking fine in their own name and you decide to reimburse them, then this counts as earnings for the employee/director. This means it's an allowable expense for the company but will have to be declared as a taxable benefit in kind with the company paying NIC and the employee/director potentially being liable to additional tax.
If you'd like any other help on what you can and can't claim for business, feel free to get in touch