EXPENSES - 12.04.2021

The tax rules that relate to HSE inspection fees

The Health and Safety Executive (HSE) recently visited and has sent an invoice for its so-called intervention fees. But is this actually a fine and, if so, will the amount be tax deductible?

The knock on the door

A subscriber’s firm was recently paid a visit by the Health and Safety Executive (HSE). They were then sent an invoice with so-called “fees for intervention” (FFI). You might reasonably think that any expense your business incurs in the course of trading ought to be tax deductible. But this isn’t always the case.

Fees? HSE charges are called intervention fees. They appear to be a charge for providing guidance about health and safety issues and are worked out according to the time spent by HSE officers. This would imply that they are deductible.

Or fines? The HSE’s website explains FFIs: “If you are found to be in material breach of health and safety law, you have to pay for the time it takes HSE to identify the breach and help put things right.  This includes investigating and taking enforcement action and is calledfee for intervention.”Tip.  These fees are therefore only charged if the rules have been broken. In effect, they are a fine, and this can change the tax treatment.

What are the rules?

There are no specific tax rules which prevent the deduction of a fine or penalty, but the expense must still meet the “wholly and exclusively” condition and not be contrary to any legal precedent which prevents deduction.

Case history. The most important precedent appeared in McKnight v Sheppard 1999 . The judges ruled that no deduction could be given for a fine or penalty because “its purpose is to punish the taxpayer” and allowing a tax deduction “diluted” its effectiveness at cost to taxpayers in general. However, the ruling does not (despite HMRC’s frequent insistence to the contrary) prevent a tax deduction for all fines and penalties. Tip. If a parking fine is made by a public authority, e.g. a local council, directly on a business, HMRC is right to deny a tax deduction. However, fines from private parking businesses are always tax deductible.

Wholly and exclusively? The general tax rule says that expenses are deductible where they are incurred “wholly and exclusively for the purpose” of its trade and are not excluded from deduction by specific tax legislation. This condition was looked at in the case of McLaren Racing Ltd v HMRC 2014 . A fine was levied by an international racing body because the company obtained information about its competitors through spying. The company might have been allowed a tax deduction but for the wholly and exclusively condition. The Upper Tribunal said that “the activities which gave rise to the penalty” , i.e. spying on its competitors “were not carried out in the course of McLaren’s trade” .

How about the HSE’s “fees”?

Even though a health and safety FFI may pass the wholly and exclusively test because it can be incurred in the normal course of trading, it fails to qualify for a tax deduction by reason of the precedent set in McKnight v Sheppard , i.e. it would dilute the fine at the cost to the taxpayer.

Tip. If an inspection is due or there are concerns about health and safety policies, a health and safety consultant can come in and check things out. Their fees are not a fine, even if they find that you’re breaking the rules. This goes to show that prevention is better than cure especially when the FFI is charged at £157 per hour.

An HSE intervention fee is a fine and is therefore not tax deductible. Even though it may meet the usual conditions for a deduction it fails because of a legal precedent which says fines should not be subsidised by the tax system. Fees charged by a private consultant for advice on health and safety matters are tax deductible.

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