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Victims Of Ransomware Face Problems With Tax Deductions

HMRC may not see payments as legitimare expenses ...

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Posted by Roger Eddowes on 01/08/2022 @ 8:00AM

Businesses are facing an onslaught of cybercrime, with hacking and financial theft on the increase and ransomware becoming a popular route for extorting funds ...

Double extortion ransomware attacks have increased massively in the past few years!

Double extortion ransomware attacks have increased massively in the past few years!

copyright: nexusplexus / 123rf


Any form of cybercrime usually involves malicious software being installed on a victim's computer. If this is inside a business network, it can spread easily to other computers and eventually into servers.

"Ransomware even locks up users data until a payment is made!"

One of the most high-profile examples was an attack on the NHS. Not only was the data locked up and demands for payment made, the hackers even threatened to publish the data online unless the ransom was paid by a particular date and time.

The UK's National Cyber Security Centre published a report showing a 935% increase in these 'double extortion' ransomware attacks compared with 2020!

Ransomeware attacks are usually paid for in cryptocurrency. Because of the decentralised nature of crypto, it can be easy to transfer funds to other jurisdictions and more difficult to track down hackers. It is possible to trace transactions made on the blockchain cryptocurrency uses, but the cash will have disappeared long before any breakthrough is made.

So, the question is, if a UK business falls victim to a ransomware attack and is forced to pay funds to get their data released, will they benefit from tax relief on those payments? Would HMRC class it as a legitimate business expense and therefore allow it as tax deductible?

There is actual legislation in England and Wales that states blackmail payments are not tax deductible. HMRC has made general references to ransomware payments, and I believe it would be reasonable to argue that payments should be a deductible expense as they were required to prevent any further loss to the business.

"However, HMRC may disagree!"

Due to the aforementioned legislation, HMRC may deny tax deductions on these payments. My advice would be to speak to your accountant should this happen to your business and be aware of the risk that HMRC may not see it as a legitimate business expense.

I think we all await clarity from HMRC on this subject.

Until next time ...

ROGER EDDOWES
Business Godparent

 
 



Would you like to know more?

If anything I've written in this blog post resonates with you and you'd like to discover more about ransomware attacks and how they may affect your business, it may be a great idea to give me a call on 01908 774320 and let's see how I can help you.

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About Roger Eddowes ...

 

Roger trained at Edward Thomas Peirson & Sons in Market Harborough before working at Hartwell & Co, followed by Chancery, as a partner. He started Essendon Accounts and Tax with Helen Beaumont in 2014 as a general practitioner with a hands-on approach.

Roger loves getting his hands dirty, working with emerging, small-to-medium and family businesses to ensure they receive the best possible accountancy advice. Roger utilises an extensive network of business contacts to leverage the best guidance and practical solutions.