A delivery driver gets a parking ticket, a director is caught speeding on the way to a meeting, a VAT return is filed late. All of these cost the business money, but most of them cannot be deducted from taxable profit. The difference depends on who issued the charge and why.
Fines for breaking the law
Penalties imposed for breaking the law are not deductible, because allowing them would let the tax system subsidise the offence. This covers:
- penalty charge notices issued by local authorities for parking or bus lane offences;
- fixed penalty notices for speeding and other motoring offences issued by the police;
- court fines;
- HMRC penalties for late filing, late payment or inaccuracies, and Companies House late filing penalties.
Interest that HMRC charges on late tax is not deductible either.
Charges that can be deductible
| Charge | Treatment |
|---|---|
| Parking charge from a private car park operator | generally deductible: it is a contractual charge, not a legal penalty, if the parking was for business |
| Late payment penalty under a supplier contract | deductible as a business cost |
| Congestion charge or clean air zone charge paid on time | deductible; it is a charge for using the road |
| Penalty for late completion under a construction contract | deductible |
Fines incurred by employees
If a business pays a parking or speeding fine incurred by an employee:
- when the vehicle is the company’s and the fine is legally the company’s liability as keeper, paying it is not a benefit to the employee, but the cost is still not deductible;
- when the fine is the employee’s own liability (such as a speeding fine addressed to the driver), paying it is earnings and goes through payroll.
Posting fines
Keep a separate “Fines and penalties (disallowable)” expense account so the amount can be added back in the tax computation without searching through motor expenses. Penalties received from customers under contracts are income.
Avoiding them
- Use parking apps and keep receipts for business parking.
- Diarise VAT, PAYE and Corporation Tax deadlines; late filing penalties rise with each missed deadline.
- Pay congestion and clean air zone charges promptly, before they become penalties.
For HMRC and Companies House deadlines and the penalties that follow, see late filing penalties; for general rules, allowable business expenses.