Reasonable Business Expense - The Chartered Institute of Taxation

Reasonable Business Expenses: Discussion paperphone bills may be permissible. 61 Similarly, the provision of a mobilephone to an employee and a member of his family will not be taxed as abenefit in kind, 62 the assumption being that private use of the mobiles soprovided would be minimal. 631.2.4. APPORTIONMENT OF MIXED PURPOSE EXPENDITURES & VATDEDUCTIBILITY 64Value added tax (VAT) is imposed throughout the European Union on thevalue of transactions and associated profits pursuant to the First 65 andSixth 66 VAT Directives of the European Union as implemented by the UKValue Added Tax Act 1994. 67 Mixed purpose expenditures raise problems,especially as regards the right to deduct input VAT in respect of goodsand services used or to be used by a taxable person for the purpose ofany business carried on by that person. 68 This is particularly so as, if aspecific expenditure falls under a proper business purpose, input VAT onsuch expenditure may be deductible. However, in the absence of abusiness purpose or, more fundamentally, the status as a taxable person,no right to deduct input VAT exists. In instances where a person incurscosts or purchases assets in both a business and a private capacity,provisions in the First and Sixth VAT Directives require that the VATincurred be deductible, but that an appropriate output tax charge be madein respect of any subsequent private use. Although there are someconcerns 69 over the UK implementation of these Directives, 70 it is clear61626364656667686970John Tiley, Revenue Law, op cit, p. 341.§319, ITEPA 2003.Robert W. Maas, Taxation of Employments, op cit, p. 111.See generally Greg Sinfield et al. (2004), VAT Deductions: AComprehensive Guide to Recovery of VAT in the UK, 1 st ed., (London:LexisNexis UK/Reed Elsevier (UK) Ltd).Directive 67/227 11 April 1967.Directive 77/388 17 May 1977.Hereafter VATA 1994.§24(1) VATA 1994.Greg Sinfield et al. (2004), VAT Deductions: A Comprehensive Guide toRecovery of VAT in the UK, op cit, pp. 86 – 87.Schedule 4, para. 5(4), VATA 1994.Bode OyetundePage 10 of 63PhD CandidateCentre for Commercial Law StudiesQueen Mary & Westfield College