Reasonable Business Expense - The Chartered Institute of Taxation

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Reasonable Business Expenses: Discussion paperincur expense which was wholly and exclusively for the purpose of histrade or profession.” 108This reasoning could conceivably apply to specialist and sophisticatedmedical care for persons whose physical fitness or features are essentialfor their professions and earning capacity. Thus, where arthroscopicsurgery 109 or other such specialist techniques involving cosmetic surgeryare performed on an athlete, 110 musician, 111 actor 112 or model 113 , and lasersand electromagnetic radiation are used to restore or enhance physicalperformance or beauty, would these costs qualify as ‘expenses whollyand exclusively incurred for the purpose of the trade or profession’? Onthe other hand, would they fall into the duality trap, particularly as therestoration of the health of the musician, athlete or model to some extentserves the patient’s needs as ‘a human being’? In these examples, theconnection between the expenditures and the maintenance orenhancement of earning capacity is clear. However, the deductibility rule,as applied by the cases, would result in either hardship or unduegenerosity to the taxpayer. The inequity of these cases could becontrasted with circumstances in which the courts have held that thepresence of a private purpose was insufficient to preclude theexclusiveness of a business purpose.108109110111112113Op cit, at p. 523 d-f.Where an orthopaedic surgeon uses an arthroscope (a pencil-sized fibreopticinstrument equipped with a miniature camera) to examine the tendonsand tissues of a joint and uses other specialist techniques involvingminiscule incision and suction/irrigation techniques to diagnose and repairknee and other joint injuries.Knee injuries are particularly common in physical sports like football, whereplayers such as Ruud Van Nistelrooy and Paul Gascoigne have had to havespecialist knee treatment.Such as Britney Spears and Spice Girl, Mel-C, who both have had specialistsurgery performed on their knees.Of the numerous celebrities that have undertaken cosmetic surgery, theexamples of Michael Jackson, Michael Douglas, Marilyn Monroe and PamelaAnderson Lee stand out.For instance, the extensive cosmetic surgery undertaken by Katie Price(‘Jordan’) including silicon implants, liposuction and collagen injectiontreatment to enhance her looks.Bode OyetundePage 18 of 63PhD CandidateCentre for Commercial Law StudiesQueen Mary & Westfield College
Reasonable Business Expenses: Discussion paper2.4. PRIVATE BENEFIT, YET PREDOMINANTLY BUSINESS MOTIVESMcLaren v Mumford 114 was an interesting case, in which the tenant of apublic house sought to deduct all his expenditure on rent, rates, lighting,heating and insurance from his profits. Under the terms of his tenancyagreement, he was required to reside on the premises despite the factthat he had alternative accommodation. In the light of the finding of factthat his only conscious motive in entering into the tenancy agreementwas to earn his living, the court held that, as there was a non-businesspurpose of satisfying the ordinary human need of accommodation, a dualpurpose existed, and the Revenue’s contention that only five-sixths of theexpenditure was deductible was upheld. 115 Here, despite the presence ofa private benefit, the court was satisfied that an apportionment could bemade given the predominantly business motivations of the taxpayer.In McKnight v Sheppard 116 the House of Lords allowed legal expenditureincurred by the sole proprietor of a stockbroking firm in defending himselfat professional disciplinary hearings. The Crown had argued that theCommissioner’s finding that the taxpayer had two purposes for incurringthe expenditure, namely to preserve his business and to preserve hispersonal reputation, indicated a duality of purpose and thus offended theexclusivity requirement. 117 In his leading judgment, Lord Hoffman heldthat there was no inconsistency in the Commissioner’s conclusion of lawthat the taxpayer’s exclusive object was to preserve his trade, and thefinding of fact that the taxpayer was not wholly unconcerned with the114 [1996] STC 1134; 69 TC 173.115On the Revenue’s claim that in similar cases, there was a practice ofpermitting apportionment of expenses, the counsel for the taxpayercuriously argued that this was wrong in law. Rimer, J noted that if this wasthe case, then none of the expenditure would have been deductible, anoutcome detrimental to the taxpayer’s interest. Unfortunately the learnedjudge did not express any view on the validity of the Revenue’s [erstwhile]practice of apportionment.116[1999] STC 669, HL.117The appeal court had allowed the Crown’s appeal ruling that the legalexpenses were non-deductible but the Court of Appeal allowed thetaxpayer’s appeal on this point.Bode OyetundePage 19 of 63PhD CandidateCentre for Commercial Law StudiesQueen Mary & Westfield College
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Reasonable Business Expense - The Chartered Institute of Taxation

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