BIM43101 - Specific deductions: crime (expenditure involving): introduction

S55 Income Tax (Trading and Other Income) Act 2005, S1304 Corporation Tax Act 2009

Criminal payments

No deduction is allowed in calculating the profits of a trade for expenses incurred:

  • in making a payment if the making of the payment constitutes a criminal offence, or
  • in making a payment outside the UK if the making of a corresponding payment in any part of the UK would constitute a criminal offence in that part.

Examples of the kinds of payments that are disallowed (referred to in this guidance as ‘criminal payments’) are payments for firearms without holding a valid firearm certificate, payments to terrorists and bribes to win contracts. Further guidance is at BIM43115 - BIM43130.

Blackmail and extortion

No deduction is allowed in calculating the profits of a trade for expenses incurred in making a payment induced by a demand which constitutes:

  • in England or Wales, the offence of blackmail (under S21 Theft Act 1968);
  • in Scotland, the offence of extortion; or
  • in Northern Ireland, the offence of blackmail (under S20 Theft Act (Northern Ireland) 1969).

An example of the kind of payment that is disallowed is a payment to a gangster for ‘protection’. Further guidance is at BIM43160 onwards.

These provisions reflect Parliament’s wish to stop indirect subsidies to criminal activities through the tax system and to encourage people not to submit to extortion.

Incidental expenses

The restrictions on deductions described above cover not only the payment itself but also any incidental costs of making that payment. This follows from the words ’expenditure incurred in making a payment’.

Handling

This legislation raises sensitive issues. Please note particularly the handling advice throughout and in particular BIM43130 and BIM43185.