ScottishPower (SCPL) Limited and Others v Commissioners for HM Revenue and Customs

Why It Matters

The outcome will determine whether regulatory redress payments are tax‑deductible, influencing cost management and compliance strategies across heavily regulated sectors.

Key Takeaways

• HMRC denied tax deduction for ScottishPower’s redress payments.
• Court argues payments were compensation, not punitive penalties.
• Tribunal found expenses were wholly and exclusively for the trade purpose.
• Regulator chose redress over penalties, influencing tax treatment argument.
• Decision could set precedent for deductibility of regulatory settlements.

Summary

The case before the Upper Tribunal concerns ScottishPower Limited’s challenge to HM Revenue & Customs’ refusal to allow a tax deduction for £8.5 million of redress payments made to vulnerable energy customers and related charities. ScottishPower argues the payments were compensation, not punitive fines, and therefore should be treated as ordinary trading expenses.

HMRC’s position rests on two statutory arguments: that regulatory sanctions are incurred after profits are earned and thus are non‑deductible, and that such sanctions are personal to the entity, serving a private rather than a trade purpose. The tribunal, however, highlighted extensive evidence – including regulator notices stating a nominal £1 penalty and a preference for customer compensation – that the payments were a negotiated settlement to avoid litigation and higher penalties, directly linked to the company’s trading activities.

Key excerpts from the regulator’s decision notices describe the intent to “provide compensation to customers” and to “look after the interests of its consumers.” The tribunal also cited precedent from the Herald case and Great Boulder, emphasizing that expenses arising inevitably from the conduct of business are deductible, even if they stem from liability settlements.

If upheld, the ruling would clarify that redress payments arising from regulatory breaches can be deducted as wholly and exclusively trading expenses, potentially reshaping how energy firms and other regulated entities account for similar settlements in future tax filings.

Original Description

ScottishPower (SCPL) Limited and others (Respondents) v Commissioners for His Majesty’s Revenue and Customs (Appellant)

Case ID: UKSC/2025/0047

https://www.supremecourt.uk/cases/uksc-2025-0047.html

Hearing date: 19 May 2026

Hearing location: City Chambers, Glasgow

Session: Morning session [Session 3 of 3]

Issue:

Does the rule preventing the deduction of penalty payments for the purpose of calculating taxable profits encompass payments made to consumers/consumer organisations in settlement of regulatory investigations?

Facts:

ScottishPower supply and generate electricity and gas. Accordingly, they are regulated by the Gas and Electricity Markets Authority (“GEMA”), but the day-to-day work of GEMA is carried out by the Office of Gas and Electricity Markets (known as “Ofgem”).

Between October 2013 and April 2016 ScottishPower entered into various agreements with GEMA to settle investigations by Ofgem into matters such as mis-selling, complaints handling, and costs transparency. Consequently, ScottishPower made payments to consumers and consumer organisations totalling roughly £28 million (in addition to paying nominal penalties).

HMRC maintains that this $28 million cannot be deducted from ScottishPower’s profits for tax purposes. ScottishPower disagrees. The First-Tier Tribunal agreed with HMRC save for one particular element of the payments. On appeal, the Upper Tribunal sided wholly with HMRC. The Court of Appeal disagreed and sided with ScottishPower. HMRC now appeals to the Supreme Court.