Wholly And Exclusively For Trade – Duality of Purpose is a post about expenditure deductible for tax purposes. It arises from the decision in Osborne v Revenue & Customs [2020] UKFIT 373 (TC).
Mr Osborne was a deep sea diver and he was trying to claim various fitness expenditure which HMRC attempted to disallow due to duality of purpose. HMRC suggested that the expenditure was not incurred wholly and exclusively for the purpose of trade. This is a requirement pursuant to Section 34 of the Income Tax (Trading and Other Income) Act 2005.
Although this section appears to permit more than one purpose in respect of an item of expenditure, there is a need that at least part of it is wholly and exclusively for the purposes of the trade.
The Tax Tribunal said that such fitness expenditure incurred by Mr Osborne could not be separately identified from the remainder for the purposes of the trade wholly and exclusively. Therefore the lot was either allowable or disallowable.
Mr Osborne won his case. The Tax Tribunal rejected the duality of purpose argument by HMRC and noted that Mr Osborne would not train for 2-3 hours a day but for his role as a saturation diver.
What Is Wholly and Exclusively For Trade?
To consider the point the Tax Tribunal considered the case law, looking for instance at a case involving the atire of a barrister:
In Mallalieu the House of Lords considered the claim by a practising barrister that expenditure on the purchase and cleaning of black tights, black shoes, black suits, black dresses and white shirts was deductible. It was common ground that the cost of collars was deductible. The relevant test (in section 130(a) Income and Corporation Taxes Act 1970 at that time) was whether the relevant expenditure was “wholly and exclusively laid out or expended for the purposes of the trade, profession or vocation”.
HMRC provided the Tribunal with the decision of the Court of Appeal in Mallalieu. It is interesting to note that both the High Court and Court of Appeal allowed Miss Mallalieu’s appeal in the basis of the Commissioners’ finding that her only conscious motive in incurring the expenditure was the requirements of her profession. We note that in allowing Miss Mallalieu’s appeal, Sir John Donaldson M.R. approved and applied the approach set out by Oliver J. in Sargent v. Barnes [1978] STC 322 in a passage at p. 329:
“This is an area in which it is difficult and, I think, positively dangerous to seek to lay down any general proposition designed to serve as a touchstone for all cases. The statute, by its very terms, directs the court to look at the purpose for which the expense was incurred in an individual case, and that necessarily involves a consideration of the intention governing or the reason behind a particular expenditure, which must depend in every case on its own individual facts. The stone which kills two birds may be aimed at one and kill another as a fortuitous or fortunate consequence; or it may be aimed at both. But it is only in the former case that the statute permits the taxpayer to deduct its cost.”
Our reading of the cases is that they suggest that an exclusively trade purpose can be identified because of a “special character dictated by the occupation as a matter of physical necessity”, but this does create an additional test that something specific must be dictated for the expenses to be deductible. The examples cited by Lord Brightman in Mallalieu, and those referred to in the extracts of the other cases cited above, including Parsons, were to assist in identifying whether the expenditure was exclusively for the purpose of the trade by looking at what was required as a matter of physical necessity for the occupation.
The Tribunal should take account of the fact that the purposes for which expenditure is incurred may go beyond the taxpayer’s conscious motive. The Tribunal may find that the taxpayer has an unavoidable secondary or private purpose, especially as fitness concerns the needs of a human being. Having reached its conclusions on the taxpayer’s purpose or purposes, the test in section 34 is applied to preclude relief if the expenditure is not incurred wholly and exclusively for the purpose of the trade. This will be the case if there is duality of purpose, but the existence of an incidental or unavoidable private advantage will not necessarily preclude the exclusivity of the business purpose.
Disclaimer: Wholly And Exclusively For Trade – Duality Of Purpose is not legal advice and not to be relied upon. No liability is accepted for any such reliance.
