Reasonable Business Expense - The Chartered Institute of Taxation

Reasonable Business Expenses: Discussion paperwhich was reasonable from that which was not”. 142 Surely, if the sum wasreasonably incurred wholly and exclusively for the purpose of thetaxpayer’s trade and not excessive in quantum, should not this bedeductible if the tax regime is to facilitate and not impede the taxpayer’sbusiness operations and competitiveness? 143 It seems that, in this case,the business entertainment expenditures were ‘efficient’ in the sensethat, although they produced both personal and business benefits, thecombined personal and business value exceeded the actual monetarycosts. 144The regime for VAT-related business entertainment expenditure issimilar. As noted above, under the Article 5 of the Input Tax Order1992, 145 tax on goods and services utilised for ‘business entertainment’ isnot deductible, as these do not constitute allowable business purposes(unlike expenditure on accepted business purposes such as advertising).This rule has been applied to disallow claims for input VAT onexpenditure on client lunches 146 and food and drink expenditure atdiscussion meetings organised by a market research company, 147 as wellas launching parties for new business 148 and harbour 149 premises. InCustoms & Excise Commissioners v Shaklee International & another, 150the Court of Appeal upheld a High Court decision 151 to disallow claims forinput VAT on food and accommodation expenditure where these142143144145146147148149150151By Lord Reid at p. 578 (emphasis added).Indeed, where journalists used such business entertainment expenditure tocultivate and maintain close relations with especially valuable contacts,information gleaned from these sources could lead to exclusive reportsplacing the newspaper well ahead of its competition. See [1972] 2 All ER574 at 576.This concept of economically ‘efficient’ expenditure produces desirablebusiness outcomes and is discussed later in this Report: see §3.3.2.S.I. 1992 No. 3222.See WB Wyatt CAR/76/65 (VTD 263); Mrs. S Woolf (t/a Sally WoolfInteriors), LON/92/2713A (VTD 10415); and W Richards, MAN/92/324 (VTD11674).Medicare Research Ltd LON/80/385 (VTD 1045).Wilsons Transport Ltd, MAN/83/68 (VTD 1468).Fraserburgh Harbour Commissioners, EDN/98/9 (VTD 15797).[1981] STC 776, CA.By Woolf, J. [1980] STC 708.Bode OyetundePage 24 of 63PhD CandidateCentre for Commercial Law StudiesQueen Mary & Westfield College