Bribery and corruption

Since 1993, payments which constitute the commission of a criminal offence have been disallowed in computing  a business' taxable profits. Since 2002, payments made overseas, the making of which would have constituted a criminal offence if made in the UK, have been similarly disallowed.

These disallowances are directed mainly, but not exclusively, at corrupt payments, e.g., bribes. Whilst the tax rules are, at first blush, unobjectionable, they remain some of the more curious in practice.

Leaving aside that very few businesses, let alone their accountants and auditors, have any familiarity with the Prevention of Corruption Acts and their application to the provision of Christmas hampers and much more besides in the way of inducements to employees and agents of both public and private organisations, many such corrupt payments are, in the event, disallowed under the head of entertaining expenses. Other payments, not being classified as entertaining but, rather, facilitation and commission payments, get lost in cost of sales without further thought.

In any event, a correct application of the law would necessitate a business preparing a DI computation showing an add-back for criminal payments. And that is hardly going to happen in a hurry. The Revenue are not generally known to show much enthusiasm for the rules, currently found at ITTOIA 2005, s 55 (income tax payers) and CTA 2009, s 1304 (corporation tax payers). All told, the tax rules have the flavour of gesture law, which looks good but achieves very little.

This would, until recently, have been in keeping with the government’s lacklustre approach to the topic generally. But, having been heavily criticised by the OECD and with the publication of a Law Commission report last year, Jack Straw (in his self appointed role of anti-corruption champion, no less) has now produced a Bribery Bill.

The Bill, when enacted, will replace the existing antiquated laws, as well as introducing a new offence for bribery etc., committed by UK nationals overseas.

It remains to be seen whether, with the new law being much clearer than the old, the tax rules will then be policed by the Revenue with more enthusiasm than has been shown to date.