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.

Share:

Share on facebook
Share on twitter
Share on pinterest
Share on linkedin
Accounting in Sheffield and Doncaster Certificates

Recently Added News

What is round the corner?

Having glimpsed the light at the end of the COVID tunnel, many of us will have everything crossed that progress towards normality will continue. The

Read More »

Related News

Tax Diary September/October 2021

1 September 2021 – Due date for Corporation Tax due for the year ended 30 November 2020. 19 September 2021 – PAYE and NIC deductions

Tax collection options

If you do not pay your tax bill on time and cannot make an alternative arrangement to pay, HMRC can take ‘enforcement action’ to recover

Furlough figures continue to fall

Almost three million people have moved off the furlough scheme since March as the economy began to bounce back and businesses reopened, according to new

Quick Links

Web + SEO - LoudCrowd