Exclusivity and tax relief

For an expense to qualify as a deduction for tax purposes we have to be able to demonstrate that the expenditure was incurred “wholly and exclusively” for the purposes of business or employment.

We will also need to consider if the expenditure has a 'duality of purpose'.

The precedent case used to decide on duality of purpose happened way back in the 1980’s, when 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 ultimately 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 also have easily been worn on a private occasion, even though she may have chosen not to do so.

As always this and other similar cases beg the question when does expenditure meet the stringent rules and qualify for tax relief?

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

Unfortunately, we are all required by legislation to comply with the “wholly and exclusively” rule however unfair it may seem, and if there is any small private advantage to the expenditure, then it will probably be disallowed by HMRC. 

In fact in their instructions to staff HMRC 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'.


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