Exclusivity and tax relief

In order to qualify as a deduction for tax purposes we have to demonstrate that the expenditure was incurred “wholly and exclusively” for the purposes of our business or employment.

We will also need to consider a further criterion: where the expenditure has a duality of purpose.

In a 1980’s case, a barrister claimed for the cost of business suits which she insisted were only used for business purposes. To her delight, the lower courts agreed, but HMRC were having none of it and pursued their case to the House of Lords where the taxpayer’s claim and appeal was dismissed.

The barrister failed to secure her claim as she could not escape the conclusion that although she may have purchased the required “subdued” clothing for her practice, the clothes purchased could have been worn on a private occasion, even though she may have chosen not to do so.

As always this and other related cases, open the door to speculation: when does expenditure meet these stringent rules?

For example, if the barrister’s suits had carried a visible label – the name of her practice – would this have tipped the balance as she could argue the suit was a uniform and not appropriate to wear on private occasions?

Removing any private advantage may be more difficult than it would appear.

Unfortunately, we are required by legislation to comply with the “wholly and exclusively” rule and if there is a whiff of private advantage to the expenditure, then it will likely be disallowed. HMRC in their instructions to staff say:

 

You should disallow expenditure on ordinary clothing worn by a trader during the course of their trade. This remains so even where particular standards of dress are required by, for example, the rules of a professional body.

Latest Blog
28
May

What are alphabet shares?

Most small companies are set up with a number of Ordinary shares, let’s say a 1...

Read More
24
May

Companies House flexes new legislative muscles

In the latest of new legislative changes that have granted Companies House new powers...

Read More
23
May

Act now to claim dormant funds

Recent legislation changes have been made which affects how the Court Funds Office (C...

Read More
16
May

Check out the Trivial Benefits rules

Trivial benefits are small gifts or perks given to employees that are exempt from tax...

Read More