Redress payments were for the purposes of trade

The taxpayers were energy providers. After an investigation for mis-selling by Ofgem the companies agreed settlement terms under which they made redress payments and paid penalties.

HMRC said these payments were not tax deductible. The taxpayer appealed.

The First-tier Tribunal concluded that payments to ‘make good the loss the customer had suffered’ were allowable. The other redress payments although also wholly and exclusively incurred for the purposes of the trade were in the nature of penalties and therefore not tax deductible.

The Upper Tribunal ruled that all the payments were non-deductible on the basis that they were penal in nature.

The taxpayers appealed.

On HMRC’s view that the payments should be treated as having the same nature or character as a penalty because that was what they replaced the Court of Appeal disagreed even if it accepted that the payments replaced penalties that would otherwise have...