Reasonable Business Expense - The Chartered Institute of Taxation

Reasonable Business Expenses: Discussion papercases where multiple, conflicting treatments of transactions are permittedby accounting. 175In certain instances, 176 where required or authorised by law, 177 taxtreatment departs from the accounting treatment of items of revenue,expenses, income and capital. 178 Tax law is not alone in this variance withaccounting practice: economic income approaches, though sharing similarroots with accounting income approaches, 179 significantly differ 180 fromaccounting income and its increasingly pervasive comprehensive incomeapproaches (for instance, those underpinning ‘fair value’ accounting). Theinsights derived from more fundamental (and indeed, more relevant fromthe perspective of the tax deductibility of expenses) economic conceptsof income are considered in the next section.3.3. ECONOMIC INCOME AND THE DEDUCTIBILITY OF EXPENSES3.3.1. INTRODUCTIONWhile accounting concepts have influenced jurists, economic theories onincome have had great impact on tax policymakers in the design ofappropriate tax bases and policies. Income, however, is a rather elusiveconcept, meaning various things to different people for diverse purposes.The ideas to which income corresponds range from tangible cash andmoney (net) receipts from economic activity to more ephemeral conceptsof economic utility or psychological satisfaction. The search for an175176177178179180See Gallagher v Jones [1993] STC 537. See also Willingale v InternationalCommercial Bank Ltd [1978] STC 75 and Pattison v Marine Midland Ltd.[1981] STC 540.For instance, in the deductibility of expenses under the rules for wholly andexclusively incurred expenses and business entertainment expenditure: seeJohn Tiley, Revenue Law, op cit, p. 398.See §42 Finance Act 1988 and §25 ITTOIA 2005.John Tiley, Revenue Law, op cit, p. 398.In the foundational concept of income: see Kevin Holmes, (2000) TheConcept of Income: A Multidisciplinary Analysis, IBFD Doctoral Series Vol.1, IBFD Publications BV, chapter 4.Kevin Holmes, (2000) The Concept of Income: A Multidisciplinary Analysis,ibid, chapter 3.Bode OyetundePage 32 of 63PhD CandidateCentre for Commercial Law StudiesQueen Mary & Westfield College