The curious case of the ATM supplier and the First World War

19 April 2016

Andrew Hubbard

Here is today's quiz question. What connects the loading of cash machines and trading with the enemy during the First World War?

A recent tax case creates the link. A company which filled cash machines appealed to the tribunal in an attempt to justify a tax deduction for the fines incurred by drivers who parked in restricted areas close to the machines they were filling. It argued that it was safer for the drivers to park as close to the machines as possible, even if this meant incurring a parking fine. Were the costs incurred wholly and exclusively for the purposes of the company's trade?  

You might well think that in the circumstances the company had a reasonable chance of success, but they came up against a fundamental principle of UK tax law - it is wrong as a matter of public policy to allow a deduction for fines, even if these arose out of the operation of the trade. 

There is nothing specific in the statute to prevent a deduction, and the principle is derived from case law. The key case concerns a penalty incurred by a company during the First World War for a breach of the regulations concerning trading with the enemy. With that background it is not difficult to see that the company would not get the sympathy of the courts when attempting to claim a tax deduction for the penalty. If we then add the detail the company had a German sounding name Alexander Von Glehn all possibility of a deduction surely vanished into thin air.  

Is it right that a principle derived from such an old case, with its extraordinary historic background, should determine the deductibility of the parking fines paid by the cash machine company? The tribunal decided that it should, and thus the company didn't get its tax deduction. 

The legacy of the First World War never ceases to amaze me…

If you would like any advice around tax deductions please contact Andrew Hubbard or your usual RSM contact.