McLaren’s £49 million “spy-gate” fine declared tax write-off

Formula One team McLaren scores tax verdict victory over HMRC.

Lewis Hamilton at the 2010 Monaco Grand Prix
McLaren's Lewis Hamilton at the Monaco Grand Prix. Photo: Getty

The McLaren Formula One team has successfully argued that a record £49 million fine incurred for “spying” on rivals Ferrari in 2007 should be tax deductible.

The decision came at a tax tribunal after a challenge from HM Revenue and Customs.

In 2007, McLaren were charged with contravening article 151c of the FIA’s sporting regulations after an 800-page dossier belonging to the Ferrari design team was found in the possession of McLaren’s then chief designer, Mike Coughlan. The revelations came after a whistle-blower alerted Ferrari that McLaren officials had asking him to photocopy the confidential 800-page document.

McLaren lawyers disputed that, because the penalty was incurred under F1 rules and not under statutory law, the infringement was not a criminal offence, arguing that it should be considered a business expense and therefore tax deductible.

Government officials from HMRC claimed that the “illicit gathering” of information was not a part of the team’s trading activities.

But Judge Charles Hellier declared in his summary:

“This cost was not one imposed by McLaren, but one which it was contractually obliged to pay under contractual obligations undertaken for the purposes of its trade”

“The penalty was something which arose from its trade, was connected with its trade, and was incurred wholly and exclusively for the purposes of its trade”.

Speaking at the South Korean Grand Prix on Friday, a McLaren spokesperson said:

“McLaren Group is a successful UK company, which provides high-quality employment and substantial tax revenue”

“As a UK-registered company, McLaren will continue to comply with all relevant legislation”.

The tribunal decision has come under fire from the Tax Justice Network, an organisation that campaigns for the closing of loopholes in the tax code.

“From a taxpayer point of view it’s extraordinary a company that has been found guilty of cheating can have the fine deducted from their bill so the tax-payer loses out as a result of their activities”, said Director John Christensen.

HMRC is now considering an appeal.