Key Points
- ScottishPower wins appeal to deduct £28M Ofgem fines from taxes.
- Court of Appeal confirms fines were not penalties and are deductible.
- HMRC previously rejected the company’s deduction of the payments.
ScottishPower, an energy business, has effectively requested to have £28 million in fines levied by the energy regulator Ofgem deducted for corporation tax purposes.
ScottishPower’s £28M tax deduction battle with HMRC
Initially decided non-deductible by HM Revenue and Customs (HMRC), the fines levied for breaches between 2013 and 2016 pertaining to mis-selling, cost-reflectivity, energy conservation, and complaints handling were
Under settlements with Ofgem, ScottishPower had agreed to pay the fines. ScottishPower challenged the ruling, though, when HMRC denied the company’s request to deduct the payments from taxable income.
The First-Tier Tribunal (FTT) backed HMRC’s claim in 2021 that most fines were non-deductible but let one £554,000 payment to be deducted. Appealing the FTT’s ruling were ScottishPower and HMRC.
According to Oilprice, the Upper Tribunal decided the £554,000 payment was likewise non-deductible in 2023 after rejecting ScottishPower’s appeal.
Upper Tribunal overturns exception on £554K payment
“In this case, the FTT decided that the payments were made in the course of the trade, that they were deducted in computing profits in accordance with ordinary principles of commercial accounting, and that (absent the penalty issue) they were made totally and exclusively for the purposes of the trade,” Lady Justice Falk said.
She said there was no justification for not deducting the contributions since they were not penalty fines.
A ScottishPower spokesman remarked, “We note the judgment.”
