Payments are not tax deductible

The taxpayers were licensed non-domestic energy suppliers one supplying electricity and the second gas. Their businesses had grown rapidly in the years before 2015 when between them they had about 40 000 gas and electricity customers most of which were small businesses.

After an investigation by the Gas and Electricity Markets Authority the taxpayers reached a settlement which included them paying compensation to some customers and making a charitable donation to the Money Advice Trust as consumer redress.

A dispute arose as to whether the compensation payments were non-deductible as fines or penalties (McKnight v Sheppard [1999] STC 669) whether they were wholly and exclusively for the purpose of the taxpayers’ trades and whether the donation qualified for charitable donations relief (CTA 2010 s 190 et seq).

The First-tier Tribunal considered first the compensation payments. It found they were made under the settlement agreement and that process...