For trading companies and businesses the legislation states that expenses have to be incurred “wholly and exclusively for the purposes of the trade”.
If an expense has more than one purpose and the trading part can be separately identified, that part will be allowed. If, however, the cost has dual purpose and it cannot be split, it will not be deductible when calculating the tax due.
It sounds straightforward but in practice it can lead to some lively arguments with Her Majesty’s Revenue and Customs officers. Sometimes these disputes reach the courts and three recent cases make interesting reading.
A television newsreader claimed the cost of purchasing and laundering the clothes she wore whilst reading the news as well as for the cost of her hair-dos. She argued that she does not need the clothes for warmth and that she would be prepared to read the news without clothes and only wears the clothes because her employer requires it. The judge, however, wasn’t persuaded and rejected her claim (following a long line of similar cases).
A stunt performer, after a particularly bad run, claimed tax deductions for the cost of a knee operation, chiropractic treatment, sports massage, dental treatment and maintaining his health and fitness. The courts found that all of his medical treatments and his massage were needed because of injuries sustained at work and to enable him to continue in his job. These were therefore allowed but his health and fitness costs were not as these were general human needs and thus had a dual purpose.
HMRC rejected the claim of a specialist registrar for the costs of attending training courses, conferences and meetings to train as a consultant dermatologist. The court overturned the decision of HMRC on the grounds that the doctor was required to attend the courses as part of her employment duties and not just to enhance her own personal performance and her career prospects. Amazingly, in my view, HMRC tried to appeal this to the High Court and Court of Appeal but both these appeals have been dismissed.
Other failed attempts to claim tax deductions for purportedly business expenses, in the past, include;
• a bank manager in Westminster claiming the cost of subscriptions to two London clubs ‘to meet potential customers’;
• a headmaster looking to allow the costs of attending a course of weekend lectures to improve his knowledge of history;
• an unemployed individual claiming the costs of seeking new employment against his taxable unemployment benefit; and
• a company director wanting to allow the costs of a record player and gramophone records ‘for the purpose of providing a stimulus of good music while he worked’.