Reasonable Business Expense - The Chartered Institute of Taxation

More documents

Recommendations

Info

Reasonable Business Expenses: Discussion paper4.2. DISSECTION AND THE REASONABLE BUSINESS EXPENSES RULEThe ‘but for’ reasonable business expenses rule could be used to expandthe scope of dissection of aggregate yet discrete mixed purposestransactions, such that those expenses that are properly attributed tobusiness purposes may be properly deducted. The decision in Watkis(Inspector of Taxes) v Ashford Sparkes & Harward 207 illustrates a feasibleapproach to implementing the reasonable business expenses rule. Here,the court considered mixed expenses on food and accommodation anddissected the deductible business elements in a series of expenses fromnon-deductible private expenses. In this case, a firm of solicitors soughtto deduct 208 the following expenses: the cost of meals taken at weekly orfortnightly lunch meetings where the firm’s business was discussed bythe partners; the cost of meals at evening plenary meetings at office orhotel locations where the partners further discussed the firm’s affairs;expenditure attributable to the partners on meals and accommodation atan annual weekend conference attended by the partners and theirfamilies; and the contribution towards accommodation for a regionalsolicitors’ conference attended by the firm’s partners. Nourse, J appliedthe House of Lords’ decision in Mallalieu v Drummond (Inspector ofTaxes) . 209 The consumption of food and drink at the firm’s lunchmeetings, dinner meetings and the solicitors’ conference would haveoccurred irrespective of any meetings, as these were provided at timeswhen lunch and dinner meals would have been eaten anyway. Althoughthe business purpose might be the predominant purpose, it was not the20720820958 TC 468; [1985] STC 451; [1985] WLR 994; [1985] 2 All ER 916.The Commissioner held the relevant expenditure was deductible, beingwholly and exclusively laid out for the profession.[1983] STC 665, HL.Bode OyetundePage 40 of 63PhD CandidateCentre for Commercial Law StudiesQueen Mary & Westfield College
Reasonable Business Expenses: Discussion paperexclusive purpose. As such, the costs of meals at these meetings 210 werenon-deductible. 211Essentially, these expenses would have been incurred anyway.Conversely, the costs of meals and accommodation 212 attributed to thepartners in respect of the annual conference were deductible. Here, thebusiness purpose was not merely the predominant purpose but theexclusive purpose, and any private benefit to the partners was consideredpurely incidental. 213 The court’s rationale indicates that these expenseswould not have been incurred ‘but for’ the existence of a clear operativebusiness purpose. Similarly, the contribution toward the cost of the venueof the solicitors’ meeting was deductible as serving a purely businesspurpose. As such, the court allowed the deduction of the costs ofovernight accommodation for the partners at the annual conference, andthe contribution towards accommodation for the solicitors’ conference.ITTOIA 2005 seems specifically to provide for the possibility of thedissection of a set of contemporaneous transactions 214 to discover anddeduct those expenses which are properly allowable as being attributed210211212213214That is, the firm’s lunch meetings, the evening dinner meetings and thesolicitors’ conference.Nourse, J distinguished the present case from the earlier Court of Appealdecision of Bentleys Stokes & Lowless v Beeson (33 TC 491; [1952] 2 All ER82) where the costs of a firm of solicitors hosting its clients to discussbusiness over lunch were held to be deductible expenses, solely incurred forthe purpose of the profession. However, subsequent legislation onentertainment expenses has altered this position: see §15, Finance Act 1965and more recently, §45 and §46, ITTOIA 2005.The judge saw no distinction between the cost of meals on the one hand andthat of accommodation on the other: see at p. 469e.Especially as the partners had homes in which they could eat at and sleepin at the weekend, further emphasising the business purpose of theexpenses.Or indeed a single purchase serving both business and private ends,provided the parts or proportions that serve the former are identifiable.Bode OyetundePage 41 of 63PhD CandidateCentre for Commercial Law StudiesQueen Mary & Westfield College
Page 1 and 2: THE REASONABLE BUSINESS EXPENSES RU
Page 3 and 4: Reasonable Business Expenses: Discu
Page 39: Reasonable Business Expenses: Discu
Page 63: Reasonable Business Expenses: Discu

Reasonable Business Expense - The Chartered Institute of Taxation

You also want an ePaper? Increase the reach of your titles

Delete template?

Save as template?