Reasonable Business Expense - The Chartered Institute of Taxation

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Reasonable Business Expenses: Discussion paperprotection of his personal reputation. The secondary ‘purpose’ wasmerely the incidental effect of the expenditure, and the existence of suchprivate advantage did not necessarily preclude the exclusivity of thebusiness purpose of preservation of the trade. 118In both cases, while it was acknowledged that a private purpose could beserved by the expenditure, it was held that the business purpose was thepredominant one, justifying the apportionment or full deduction of therelevant expenses. The findings of fact that both taxpayers consciouslyhad business objectives 119 in mind seem to have been crucial in eachdecision. Yet, in Mallalieu v Drummond, 120 a similar finding of fact wasinsufficient to prevent the House of Lords holding that presence ofsubconscious human needs of warmth and decency vitiated theexclusivity of the taxpayer’s conscious business purpose. The point atwhich subconscious private motives acquire sufficient substance to impairthe exclusivity of a conscious business purpose seems to be unclear. 1212.5. TRAVEL, ACCOMMODATION, FOOD AND BUSINESS ENTERTAINMENTEXPENDITURE2.5.1. BUSINESS INCOME EXPENDITURECase law on expenditure properly deductible from business incomeillustrates the severity of the rule prohibiting deduction of any dual-118119120121Lord Hoffman also held that the legal fees were properly deductible,following Morgan (Inspector of Taxes) v Tate & Lyle [1955] AC 21, 35 TC367, as to hold otherwise would amount to an additional fine on the taxpayernot provided by the relevant regulatory scheme and be unjust in impairingthe taxpayer’s right to defend himself in such proceedings. However,punitive fines were not deductible on public policy grounds.Namely, to earn a living as a publican and to preserve the privilege to tradeas a stockbroker.[1983] STC 124, CA; [1983] STC 665, HL.John Tiley, Revenue Law, op cit, p. 421.Bode OyetundePage 20 of 63PhD CandidateCentre for Commercial Law StudiesQueen Mary & Westfield College
Reasonable Business Expenses: Discussion paperpurpose expenditure. In Newsom v Robertson (Inspector of Taxes) 122 theCourt of Appeal dismissed a barrister’s claim of deductibility for the costsof commuting from his home to his chambers in London. In that case,Lord Denning drew a distinction between living or personal expenses(commuting from home) and business expenses (such as the cost oftransportation from chambers, the barrister’s base, to the courts), withthe result that, as commuting costs were incurred for the purpose of livingaway from work, they fell into the former category and were nondeductible.123 Similarly, Romer, LJ balked at the idea that all Schedule Dtaxpayers would be entitled to deduct the costs of commuting to and fromwork, particularly as the object of both journeys was not to enabletaxpayers to do their work, but rather to allow them to live away from it. 124In some cases, the facts clearly indicate that the predominant motive forthe expenditure is the promotion of personal benefit. Here, little inequitycan be alleged to result from the application of the ‘wholly andexclusively’ rule. For example, in Bowden v Russell & Russell, 125 travel,accommodation and other expenses incurred by a solicitor in attendingprofessional conferences in North America were disallowed as having adual purpose. The evidence showed that the solicitor did not attend theconferences in a representative, official capacity; he intended also tohave a holiday, was accompanied by his wife and spent a considerableamount of time engaged in sightseeing and social activities. A distinct,non-business purpose was found and the deduction prohibited for duality.Other cases are less clear-cut, especially where both private andbusiness considerations exist contemporaneously and neither can be saidto predominate. Watkis (Inspector of Taxes) v Ashford Sparkes &122123124125[1953] 1 Ch 7; [1952] 2 All ER 728, CA.[1952] 2 All ER 728 at pp. 731 - 732.Op cit, at p. 732.[1965] 2 All ER 258; [1965] WLR 711; 42 TC 301 per Pennycuick, J.Bode OyetundePage 21 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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