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General Tax
“Speed has never killed anyone – suddenly becoming stationary, that’s what gets you.” (Jeremy Clarkson)
Looks like Jeremy is leaving Top Gear so it’s the end of an era for us petrolheads. As homage to the self-confessed dinosaur, sadly now on the verge of extinction, I’m devoting this blog to performance car-related tax matters. I am definitely qualified to talk about this having spent my birthday in July 2013 in Stuttgart going round the exhibition celebrating 50 years of the Porsche 911. It was fabulous – I picked out a few models in case I win the lottery (unlikely as I’m a conscientious objector).
So to Jeremy’s beloved Formula One. In 2007 McLaren Racing Ltd was fined by the Fédération Internationale de l’Automobile (the governing body for motor sport) for breaches of its code of conduct. A Ferrari employee had slipped confidential information about the design of Ferrari’s cars to McLaren’s chief car designer. This industrial espionage gave rise to some interesting tax questions.
McLaren is a UK resident company and claimed a £32 million tax deduction for the penalty which HMRC refused to allow. There were two questions to be answered. Firstly, whether the payment of the penalty was ‘wholly and exclusively’ for the purposes of McLaren’s trade, and, secondly, whether it arose out of that trade.
When this matter came before the First-tier Tribunal the Tribunal Chairman, Charles Hellier, and the Tribunal member, Nicolas Dee, came to different conclusions. The Chairman’s view prevailed as he has a casting vote in this situation. Astonishingly, Judge Hellier found that, although the activities that gave rise to the penalty (cheating) were not a normal or ordinary part of McLaren’s trade (Formula One racing) , those activities (cheating) ‘were so closely associated with [the] mainstream of McLaren’s trade that I cannot say that they were not part of it.’ He allowed the appeal.
The First-tier Tribunal’s decision was overturned by the Upper Tribunal in June 2014. The Upper Tribunal’s reasoning was that:
‘In our view, a deliberate activity which is contrary to contractual obligations and the rules and regulations governing the conduct of the trade, which is not an unavoidable consequence of carrying on a trade and which could lead to the destruction of the trade is not an activity carried on in the course of that trade. We consider that, on the facts as found by the FTT, Judge Hellier should have concluded that the activities which gave rise to the penalty were not part of McLaren’s trade.’
The penalty was a punishment for cheating and, as such, was not tax deductible as it would somewhat defeat the purpose if we were all chipped-in through the tax system.
By the way, I bumped into the diminutive Formula 1® Chief Executive Bernie Ecclestone on 8th November 2013 when the fire alarm went off in the Rolls Building and we were leaving by the same fire escape. I was there doing a stint of judging and he was being tried downstairs in Court 26. The accusation was that Bernie had fabricated the reasons for a £10 million payment he made to Gerhard Gribkowsky, a former banker who had been imprisoned for eight and a half years in Germany for accepting the cash as part of a £27 million alleged bribe. According to the Guardian:
‘ “I paid because I said I was being shaken down,” Ecclestone said before explaining why he didn’t go to the police.
He said he gave Gribkowsky £10m as an “insurance policy” because he feared his tax arrangements could be reported to HM Revenue & Customs.’
On the first day of his trial Bernie gave a creditable impersonation of a hamster when he unsuccessfully tried to master the revolving doors and enter the Court building. And, yes, he really is tiny.
An F1 car is not normally a car for tax purposes as it cannot be used on public roads (apart from the modified one owned by Rowan Atkinson it seems) but if you want performance and tax efficiency forget the ludicrously named G-Whiz and go for the Porsche Panamera S E-Hybrid – exempt from the congestion charge, VED and the first registration fee. If taxed as a benefit in kind the 5% rate applies and it’s eligible for 100% first year allowances.
0-100 km/h in 5.5 seconds, and a top speed of 270km/h.
Using the electric motor you can travel up to 22 miles without having to plug it in (as long as you’re not listening to the radio or using the windscreen wipers presumably). And you can join the Greens with a clear conscience but I don’t think our Jeremy would approve.
Tax lawyer specialising in business tax, SDLT and VAT
