Exactly how big was the McLaren fine in 2007?

[Noj]

$100m or ￜ32m (I can't be arsed converting $ to ￜ)

http://www.autosport.com/news/report.php/id/103312

Does this mean a speeding fine is tax deductable too ?

[Bobster]

On 12 Oct, 10:16, Noj <m...@privacy.net> wrote:
> $100m or £32m (I can't be arsed converting $ to £)

>
> http://www.autosport.com/news/report.php/id/103312
>
> Does this mean a speeding fine is tax deductable too ?

$200m BUT they didn't have to pay it all in cash. The amount of cash
they had to hand over to FIA was $200 less whatever they would have
got from FOM for the year. Which is still $200m lost overall, but they
didn't have to stump up $200m in one go out of their own bank
accounts.

I suppose there may have been a suspicion (since FIA didn't have
oversight of anybody's bank acccounts) that McLaren didn't have that
much cash (I recall other team bosses saying that if they were asked
to hand over $200m it would mean the team closing down). So if FIA had
the FOM money paid directly to them they were going to get some of the
money and that wouldn't go into a pot from which creditors were trying
to recover what they were owed by a team that had just gone belly up.

[Bobster]

On 12 Oct, 10:26, Bobster <megap...@gmail.com> wrote:
> On 12 Oct, 10:16, Noj <m...@privacy.net> wrote:
>
> > $100m or £32m (I can't be arsed converting $ to £)
>
> >http://www.autosport.com/news/report.php/id/103312
>
> > Does this mean a speeding fine is tax deductable too ?
>
> $200m BUT they didn't have to pay it all in cash. The amount of cash
> they had to hand over to FIA was $200 less whatever they would have
> got from FOM for the year. Which is still $200m lost overall, but they
> didn't have to stump up $200m in one go out of their own bank
> accounts.

Bah! Sneaky 2 key crept under my fingers. Sorry... $100m, but not all
payable up front by McLaren. $100m less the amount they would have got
from FOM was what they had to pay out out of their own piggy bank.

[Bobster]

Key point. The full $100m would not have been on McLaren's books. Part
of the fine was FOM money that was withheld and thus never entered
their accounting system.

[Bigbird]

No.

[larkim]

Not necessarily true. You record income when it is receivable, not when it is received. So I buy a widget from you for £1000 on 31st December, and we agree that you'll pay me on 30 day credit terms. Income = £1,000 for the year ended 31st December, but cash = £0 (debtors = £1,000). Next year if I sell nothing at all, income = £0, but assuming I pay you cash = £1000, debtors = £0.

I would have thought that the contractual income due under the agreements would have been recorded as income, and the fine recorded as a cost, so that the net was shown overall in their accounts.

I suppose that the treatment of the cost as being tax deductible makes a little sense - it wasn't a "fine" in the criminal law sense, it was just a breach of a private commercial agreement. So in a similar way, if I charge customers a 5% surcharge for breaching their agreed credit terms, I would expect them to be able to treat the surcharge as tax deductible.

Matt

[larkim]

In the McLaren group accounts for 2007, they say :-
"The World Motor Sport Council, at a meeting on 13 September 2007, imposed sanctions on the McLaren Racing Team. These sanctions will result in lower prize money being received in 2008 and the first quarter 2009. The sanctions also resulted in a payment to the FIA falling due on 13 December 2007. Due to the nature of the calculation the payment cannot be calculated exactly until April 2009. However, it has been estimated at $66m within these accounts. At the balance sheet date $50m had been paid, with a further $13.5m being paid in April 2008. The balancing payment is expected to be made in April 2009."

Accounts available from Companies House at £1 a pop.

Matt

[Bobster]

On 12 Oct, 11:40, larkim <matthew.lar...@gmail.com> wrote:
> On Friday, 12 October 2012 09:39:15 UTC+1, Bobster  wrote:
> > On 12 Oct, 10:30, Bobster <megap...@gmail.com> wrote:
>
> > > On 12 Oct, 10:26, Bobster <megap...@gmail.com> wrote:
>
> > > > On 12 Oct, 10:16, Noj <m...@privacy.net> wrote:
>
> > > > > $100m or £32m (I can't be arsed converting $ to £)
>
> > > > >http://www.autosport.com/news/report.php/id/103312
>
> > > > > Does this mean a speeding fine is tax deductable too ?
>
> > > > $200m BUT they didn't have to pay it all in cash. The amount of cash
>
> > > > they had to hand over to FIA was $200 less whatever they would have
>
> > > > got from FOM for the year. Which is still $200m lost overall, but they
>
> > > > didn't have to stump up $200m in one go out of their own bank
>
> > > > accounts.
>
> > > Bah! Sneaky 2 key crept under my fingers. Sorry... $100m, but not all
>
> > > payable up front by McLaren. $100m less the amount they would have got
>
> > > from FOM was what they had to pay out out of their own piggy bank.
>
> > Key point. The full $100m would not have been on McLaren's books. Part
>
> > of the fine was FOM money that was withheld and thus never entered
>
> > their accounting system.
>
> Not necessarily true.  You record income when it is receivable, not when it is received.  So I buy a widget from you for £1000 on 31st December, and we agree that you'll  pay me on 30 day credit terms.  Income = £1,000 for the year ended 31st December, but cash = £0 (debtors = £1,000).  Next year if I sell nothing at all, income = £0, but assuming I pay you cash = £1000, debtors = £0.

Ah! I'm no accountant. But in this case the FOM money was never going
to be receivable, and the exact amount still had to be calculated. I
don't think there are any guarantees of a specific amount to a
specific team. We know they'll get something (assuming they are not
ejected from the championship) but not how much.

> I would have thought that the contractual income due under the agreements would have been recorded as income, and the fine recorded as a cost, so that the net was shown overall in their accounts.

See above. The amount of FOM income is not known until the season is
concluded. Except, in 2007, McLaren knew they would not get a bean
(but they didn't know that at the start of the season).

>
> I suppose that the treatment of the cost as being tax deductible makes a little sense - it wasn't a "fine" in the criminal law sense, it was just a breach of a private commercial agreement.  So in a similar way, if I charge customers a 5% surcharge for breaching their agreed credit terms, I would expect them to be able to treat the surcharge as tax deductible.

Well that was the argument the lawyers were having.

[Bigbird]

Of course the amount would have to be calculated so that the FIA and
FOM could do their dealing. If there would have been any benefit in
recording the income as turnover I'm sure they could have argued the
case but then they would have been looking at arguing the CT case on
the full $100m.

There are many choices in accounting methods as long as the basic
principles are adhered to.

> > I would have thought that the contractual income due under the
> > agreements would have been recorded as income, and the fine
> > recorded as a cost, so that the net was shown overall in their
> > accounts.
>
> See above. The amount of FOM income is not known until the season is
> concluded. Except, in 2007, McLaren knew they would not get a bean
> (but they didn't know that at the start of the season).

Was the money still not due to McLaren.

Income from FOM
$100 fine
---------------
Balance due to FIA

Cutting out the middle man does not change this.

That McLaren chose not to do this would be something they may have had
to argue with the HMRC.

[Mark]

Noj <m...@privacy.net> wrote:
>
> $100m or £32m (I can't be arsed converting $ to £)

>
> http://www.autosport.com/news/report.php/id/103312
>
> Does this mean a speeding fine is tax deductable too ?

Critically, a speeding fine is a legal penalty where the FIA's fine was
not imposed as part of a criminal or civil action.

I know the FIA think they're the law - despite having been slapped for
their clearly unjudicial behaviour - but it isn't so!

[Bobster]

On 12 Oct, 10:16, Noj <m...@privacy.net> wrote:
> $100m or £32m (I can't be arsed converting $ to £)

>
> http://www.autosport.com/news/report.php/id/103312
>
> Does this mean a speeding fine is tax deductable too ?

http://www.pitpass.com/47592-McLaren-Spygate-fine-is-tax-deductible

"Initially set at $100m, the FIA subsequently reduced the fine to $51m
(£32m), the reduction set against the loss of revenue, including TV
and travel money, after the team's involvement in the scandal that
rocked the sport in 2007 which saw it excluded for the season's
results and thereby forfeiting all its points."

So... total damage to McLaren - $100m.
Total they actually had to hand over - $51m.

[Bobster]

Well there was some argument about the exact nature of the fine (and
words often have different meanings in different contexts).

The judge hearing the case rule thusly: "This cost was not one imposed
on McLaren, but one which it was contractually obliged to pay under
contractual obligations undertaken for the purposes of its trade. It
did not result from the action of an external regulator, but from a
body to whose dictates it had agreed to submit as part of its trade
and in order to gain income... the penalty was something which arose
from its trade, was connected with its trade and was incurred wholly
and exclusively for the purposes of its trade."

So he's avoiding the word "fine" and making the distinction, or so it
seems to me, that a "fine" is something imposed by an external
regulator.