ScottishPower: Court grants appeal against HMRC over £28m tax bill
Energy giant ScottishPower has been granted an appeal to allow it to deduct £28m in fines by Ofgem for corporation tax purposes.
Investigations by regulator Ofgem found companies within the Scottish Power group had breached regulations between 2013 and 2016, in relation to mis-selling, cost-reflectivity, energy saving and complaints handling.
Scottish Power entered into a number of settlement agreements with Ofgem under, which it agreed to pay penalties that totalled £28m.
The group sought to deduct the £28m for corporation tax purposes, but HMRC rejected it.
HMRC concluded that the ScottishPower were wrong to deduct the £28m payments from their
profits for the purposes of corporation tax and amended the taxpayers’ corporation tax returns
accordingly.
The group appealed HMRC’s ruling to the First-Tier Tribunal in 2021, which agreed with HMRC that the vast majority of the payments were not deductible. However, the FTT ruled that one of the payments (£554k) was deductible.
ScottishPower appealed against that decision, while HMRC appealed that decision to allow the £554k payment to be deductible.
In 2023, the Upper Tribunal dismissed Scottish Power’s appeal and granted HMRC’s appeal in relation to the £554k payment, rendering it as nondeductible.
The group took this case to the Court of Appeal, which on Friday, ruled in its favour.
Lady Justice Falk stated “in this case the FTT decided that the payments were made in the course of the trade, that they were deducted in computing profits in accordance with ordinary principles of commercial accounting and that (absent the penalty issue) they were made wholly and exclusively for the purposes of the trade.”
“Since they were not in fact penalty payments there is therefore nothing that prevents them from being deductible. I would therefore allow the appeal,” she added.
A ScottishPower spokesperson said: “We note the judgement.”