--- title: "Court of Appeal Sides with ScottishPower in £28 Million Tax Dispute with HMRC" url: https://taxdisputes.co.uk/2025/01/court-of-appeal-sides-with-scottishpower-in-28-million-tax-dispute-with-hmrc/ date: 2025-01-21 modified: 2026-06-02 author: "Shumaim Rizvi" description: "The Court of Appeal has delivered a landmark ruling in favour of ScottishPower, allowing the deduction of £28 million in payments made to consumers and charities during regulatory investigations from its corporation tax. Overturning previous decisions, the court clarified that these payments were not penalties but deductible trading expenses incurred in the course of business. This decision highlights the importance of distinguishing between penalties and compensatory payments under tax law and provides significant guidance for businesses navigating regulatory settlements and their tax implications." categories: - "Appeals" - "Energy Sector" - "First Tier Tax Tribunal" - "HMRC" - "HMRC Penalty" - "Legal Insights" - "Limited Companies" - "Limited Company" - "Litigation" - "Media" - "News" - "Report on HMRC" - "Tax Investigation" - "Tax Law" - "taxpayer" - "Tribunal Proceedings" - "Upper Tribunal" tags: - "Corporate Tax" - "Corporation Tax" - "Court of Appeal" - "energy sector" - "First Tier Tax Tribunal" - "HMRC" - "HMRC Investigations" - "HMRC Tax Disputes" - "Litigation" - "Penalty" - "ScottishPower" - "Tax" - "Tax and Chancery Chamber" - "Tax Appeal" - "Tax Appeals" - "Tax Disputes" - "Tax Law" - "Tax Tribunal" - "UK Tax Litigation" - "Upper Tax Tribunal" - "Upper Tier Tribunal" - "Upper Tribunal" image: https://taxdisputes.co.uk/wp-content/uploads/2025/01/ScottishPower-scaled-e1737467435610-1024x292.jpg word_count: 952 --- # Court of Appeal Sides with ScottishPower in £28 Million Tax Dispute with HMRC In a significant victory for [ScottishPower](https://www.scottishpower.co.uk/), the [Court of Appeal](https://www.judiciary.uk/courts-and-tribunals/court-of-appeal-home/) has overturned a previous ruling by the [Upper Tribunal](https://www.judiciary.uk/courts-and-tribunals/tribunals/upper-tribunal/upper-tribunal-tax-and-chancery-chamber/), allowing the energy company to deduct £28 million in payments from its corporation tax. This decision highlights the complex nature of tax law, especially regarding payments made to settle regulatory investigations. The ruling clarifies the distinction between penalties and deductible trading expenses, and has important implications for businesses in the UK. ## ScottishPower v HMRC The dispute arose from regulatory investigations by [Ofgem](https://www.ofgem.gov.uk/), which found that companies within the [ScottishPower](https://find-and-update.company-information.service.gov.uk/company/SC117120) group had breached regulations between 2013 and 2016. These breaches included issues related to mis-selling, cost-reflectivity, energy saving, and complaints handling. To settle these investigations, [ScottishPower](https://find-and-update.company-information.service.gov.uk/company/SC193794) agreed to make payments to consumers, consumer organisations, and charities, totalling around £28 million, instead of facing substantial penalties. ## HMRC's Initial Stance [HMRC](https://www.gov.uk/government/organisations/hm-revenue-customs) rejected [ScottishPower](https://en.wikipedia.org/wiki/ScottishPower)’s attempt to deduct these payments for corporation tax purposes, arguing that they were essentially penalties and therefore not tax deductible. [HMRC](https://www.gov.uk/government/organisations/hm-revenue-customs) amended the taxpayers’ corporation tax returns accordingly. ## First-Tier Tribunal (FTT) Ruling The case was initially heard at the [First-Tier Tribunal (FTT)](https://www.judiciary.uk/courts-and-tribunals/tribunals/first-tier-tribunal/first-tier-tribunal-tax-chamber/) in 2021, which largely sided with [HMRC](https://www.gov.uk/government/organisations/hm-revenue-customs), ruling that the payments were non-deductible, except for one payment of £554,000 which was deemed to be compensation. This sum was to be paid to consumers directly affected by the mis-selling. [ScottishPower](https://www.scottishpower.co.uk/) appealed this decision. ## Download First-tier Tribunal Judgment Here [![](https://taxdisputes.co.uk/wp-content/uploads/2025/01/ScottishPower-Ltd-v-HMRC-2022-UKFTT-41-TC-TC08393-724x1024.jpg)](https://taxdisputes.co.uk/wp-content/uploads/2025/01/ScottishPower-Ltd-v-HMRC-2022-UKFTT-41-TC-TC08393.pdf) ## Upper Tribunal Decision In 2023, the [Upper Tribunal](https://www.judiciary.uk/courts-and-tribunals/tribunals/upper-tribunal/upper-tribunal-tax-and-chancery-chamber/) dismissed [ScottishPower](https://www.scottishpower.co.uk/)’s appeal and ruled in favour of [HMRC](https://www.gov.uk/government/organisations/hm-revenue-customs)**,** regarding the £554,000 payment, rendering it non-deductible. This ruling further solidified the view that the payments were, in effect, penalties. ## Download Upper Tribunal Judgment Here [![](https://taxdisputes.co.uk/wp-content/uploads/2025/01/ScottishPower-Ltd-and-others-v-HMRC-2023-UKUT-00218-TCC-724x1024.jpg)](https://taxdisputes.co.uk/wp-content/uploads/2025/01/ScottishPower-Ltd-and-others-v-HMRC-2023-UKUT-00218-TCC.pdf) ## Court of Appeal Decision On Friday, 17 January 2025, the [Court of Appeal](https://www.judiciary.uk/courts-and-tribunals/court-of-appeal-home/) overturned the Upper Tribunal’s decision, ruling in favour of [ScottishPower](https://en.wikipedia.org/wiki/ScottishPower). The court held that the payments were not penalties but were made to settle regulatory investigations, thus qualifying as deductible trading expenses. Lady Justice Falk stated that the payments were made in the course of trade and were deducted in computing profits according to commercial accounting principles. The court emphasised that the nature of the payment, not its purpose, was the crucial factor. The ruling clarified that the von Glehn principle, which prevents the deduction of penalties, does not apply to payments made in lieu of penalties. Lady Justice Falk, writing the lead judgment, noted that the prohibition on the deduction of penalties established in *Commissioners of Inland Revenue v Alexander von Glehn & Co. Ltd* [1920] 2 KB 553, as explained in *McKnight (HM Inspector of Taxes) v Sheppard* [1999] 1 WLR 1333, was based on the principle that the “legislative policy [of the penalty regime] would be diluted if the taxpayer were allowed to share the burden with the rest of the community by a deduction for the purposes of tax.” However, Falk LJ clarified that this principle does not extend to payments which are not fines or penalties. The court emphasised that the scope of any extension to the rule would be highly uncertain and should be a matter for Parliament, not the courts. ## Key Points of the Court of Appeal Ruling - The court distinguished between penalties and payments made to settle regulatory investigations. - The nature of the payment, rather than its purpose, was deemed crucial for tax deductibility. - The von Glehn principle specifically applies to penalties and not to payments in lieu of penalties. - The court found that the payments were made in the course of trade and were deductible according to commercial accounting principles. This ruling provides clarity for companies regarding the tax treatment of payments made to settle regulatory investigations. It underscores the importance of analysing the character of payments rather than their intended purpose when determining tax deductibility. Companies need to consider potential tax implications when negotiating settlements with regulators. ## Download the Judgment Here [![](https://taxdisputes.co.uk/wp-content/uploads/2025/01/ScottishPower-SCPL-Limited-Ors-v-The-Commissioners-for-His-Majestys-Revenue-and-Customs-2025-EWCA-Civ-3-724x1024.jpg)](https://taxdisputes.co.uk/wp-content/uploads/2025/01/ScottishPower-SCPL-Limited-Ors-v-The-Commissioners-for-His-Majestys-Revenue-and-Customs-2025-EWCA-Civ-3.pdf) ## The £554,000 Payment The First-Tier Tribunal initially considered a payment of £554,013 to be compensatory as it went directly to affected consumers. The Upper Tribunal disagreed, and then the Court of Appeal did not distinguish this payment as different from the other payments, which were all made in lieu of penalties. ## Expert London Tax Litigation Lawyers Navigating [tax disputes with HMRC](https://taxdisputes.co.uk/) can be complex and stressful. 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