British Formula 1 team McLaren has been denied tax relief on a fine imposed by motor racing’s governing body, the FIA, at an Upper Tier Tax Tribunal. The £32 million fine was imposed in 2007 after it was discovered McLaren had been passed confidential technical information about competitors Ferrari by former engineers Nigel Stepney and Mike Coughlan. The subsequent investigation resulted in high-profile sackings, the team’s exclusion from the Constructors’ Championship and the largest financial penalty in the sport’s history.

McLaren had initially attempted to classify the fine as a business expense to lower their taxable profits, however this was challenged by HMRC. A First Tier Tribunal sided with McLaren, however HMRC appealed the decision and ultimately emerged victorious earlier this week. The Tribunal ruled that the penalty “was not incurred wholly and exclusively for the purposes of McLaren’s trade and so was not an allowable deduction for tax.”

Jim Harra, HMRC’s Director General of Business Tax, said of the decision:

“We’re very pleased the Upper Tribunal agrees that the fine should not be given tax relief, which supports our view that most fines are not allowable as deductions against trading income.

“This case shows that we won’t hesitate to go to court to make sure the right tax is paid.”

The Tribunal is the most recent in a series of financial scandals to hit Formula 1. The sport’s owner Bernie Ecclestone was the subject of a BBC Panorama investigation earlier this year alleging he avoided around £1.2 billion in tax through a series of family trusts in the tax haven of Liechtenstein.

Photo by Takayuki Suzuki