Reasonable Business Expense - The Chartered Institute of Taxation

More documents

Recommendations

Info

Reasonable Business Expenses: Discussion paperA common thread in these employment income tests is the objectiverequirement of necessity. 39 It is not sufficient that the expenses beincurred by the employee as the holder of employment 40 or, indeed,‘wholly and exclusively’ incurred in the performance of the employment. 41The expenses must, in addition, be incurred necessarily in theperformance of employment duties 42 or necessarily incurred on travellingin the performance of employment duties, 43 or must be attributed to theemployee’s necessary attendance at any place in the performance of theemployment. 44 This common requirement renders these former ScheduleE tests more rigorous than the old Schedule D Cases I and II test, leadingto possible discrepancies and tax planning challenges. 45 While case lawon this requirement (particularly as regards travelling expenses) may bechequered, 46 the hope has been expressed elsewhere that the realities ofmodern business practices, such as the subjectivity of negotiatingexecutive employment contracts 47 and the need to avoid tax-induceddistortions on commercial management decisions, 48 would be dulyconsidered in interpreting case law and introducing possible reforms.These issues, however, are beyond the scope of this Report, and wouldbe better addressed by further analysis, perhaps in another report.39See Ricketts v Colquhoun [1926] AC 1; see also Roskams v Bennett (1950)32 TC 129.40Required in all three tests: see §336, §337 and §338, ITEPA 2003.41Required under the §336 test, ITEPA 2003.42§336, ITEPA 2003.43§337, ITEPA 2003.44§338, ITEPA 2003.45 John Tiley, Revenue Law, op cit, p. 343.46See Ricketts v Colquhoun [1926] AC 1; Owen v Pook [1969] 2 All ER 1 andTaylor v Provan [1974] STC 168.47John Tiley, Revenue Law, op cit, p. 330.48Robert W. Maas, Taxation of Employments, op cit, p. 94.Bode OyetundePage 8 of 63PhD CandidateCentre for Commercial Law StudiesQueen Mary & Westfield College
Reasonable Business Expenses: Discussion paperSimilarly, the consideration of the ‘wholly and exclusively’ 49 rule here islimited to non-travelling expenses. 50 Case law on duality of employeeexpenses is similar to that under business income tax, with decisionssuch as Hillyer v Leeke, 51 Woodcock v IRC 52 and Fergusson v Noble 53prohibiting deductibility for expenditure on clothing with dual purposes.Claims for the excess of expenditure on meals, 54 the extra cost of living inLondon 55 and abroad, 56 mess expenses 57 and lodging expenses 58 beyondwhat would have obtained had the taxpayer not been employed havefailed due to the fatality of the dual purpose admission implicit in suchclaims. 59 As regards telephone expenses, case law indicates that, wherethe employee incurs expenditure on telephone rental charges and there isthe possibility of private as well as business use of the facilities, suchexpenses are likely to fall foul of the rule against duality. 60 However, thededuction of purely business calls identified by the dissection of itemised49The test of necessity has been said to be objective and predicated on thebasis that without the expenditure, the employee’s task could not beperformed: see Brown v Bullock (1961) 40 TC 1, at p. 10. See also JohnTiley, Revenue Law, op cit, p. 340. However, some commentators considerthat the word “necessarily” adds little, if any incremental import to the‘wholly and exclusively’ rule, given the present requirement that theemployee must be necessarily obliged to incur the expense, by implicationsuch an expense would be deemed to be necessarily incurred: see RobertW. Maas, Taxation of Employments, op cit, p. 107. Further analysis onwhether this requirement adds or detracts from the ‘wholly and exclusively’rule, however, is beyond the scope of this Report.50As such, the regime for travel expenses would not be examined in depth.5151 TC 90: where expenditure on formal suits and ties incurred by acomputer engineer was denied deduction for serving the private purposes ofwarmth and decency.5251 TC 698: here, though the taxpayer, an engineer, was allowed deductionon special protective wear, however expenditure for additional maintenancedue to excessive oil stains on everyday wear was denied deduction.537 TC 176: a plainclothes policeman was taxed on a clothing allowance yetwas refused deduction for the associated expenditure.54Sanderson v Durbidge 36 TC 238.55Bolam v Barlow 31 TC 136; McKie v Warner 40 TC 65.56Robinson v Corry 18 TC 411.57 Lomax v Newton 34 TC 558; Griffiths v Mockler 35 TC 135.58 Nagley v Spilsbury 37 TC 178.59As if the taxpayer claimed deductibility for some and not all of an item ofexpenditure, then he implicitly admits the expenditure serves a dualpurpose.60See Lucas v Cattell 48 TC 353; Nolder v Walters 15 TC 380; Hamerton vOvery 35 TC 73.Bode OyetundePage 9 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 7: Reasonable Business Expenses: Discu
Page 59 and 60:
Reasonable Business Expenses: Discu
Page 61 and 62:
Page 63:
show all

Reasonable Business Expense - The Chartered Institute of Taxation

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

Delete template?

Save as template?