One of our dentists received a parking penalty of £35 for his company’s electric car.
He asked us if his company could pay the fine.
The company can pay the parking fine, but some vital tax considerations exist.
What the Tax Rules Say:
If the parking fine is attached to a vehicle owned by the company (i.e., the registered owner) and paid directly to the person who issued the fine, our dentist will not be charged employment income. In other words, the fine won’t count as a taxed benefit, so our dentist won’t pay any income tax.
However, the catch is that this payment is not tax-deductible. The parking fine will be disallowed when calculating the company’s taxable profit. HMRC does not allow tax relief on fines and penalties.
Can the Fine Be Treated as a Trivial Benefit?
You might think that since the parking fine is under £50, it could be considered a trivial benefit and qualify for Corporation Tax relief. Unfortunately, parking fines don’t meet the criteria for trivial benefits, as they should not be cash payments, rewards for work, or related to contractual obligations.
A parking fine on a company car is a legal penalty, not a genuine employee perk, so it cannot be classified as a trivial benefit.
What Happens If the Dentist Pays and the Company Reimburses?
Here’s where things get tricky. If our dentist pays the fine from their personal account and their company reimburses it, this reimbursement is treated as taxable earnings.
The dentist must pay tax on the reimbursement, and the company must report it through payroll. The company will get tax relief upon this payment, but this creates additional tax and reporting burdens for small businesses, and it is often not worth the hassle of a small taxable benefit for £35.
The Best Approach: Pay Directly from the Company Account
The company should pay the fine directly from its bank account to keep things simple. While the fine won’t be tax-deductible, this approach avoids creating a taxable benefit for the dentist and sidesteps the complexity of payroll reporting.
Key Takeaways:
- The company can pay parking fines for company-owned vehicles.
- These fines are not tax-deductible expenses.
- Parking fines cannot be classified as trivial benefits.
- Avoid reimbursing yourself for parking fines paid personally, as this creates taxable earnings.