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HMRC internal manual

Business Income Manual

HM Revenue & Customs
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Wholly and exclusively: how to establish purpose: objective or subjective test

S34 Income Tax (Trading and Other Income) Act 2005, S54 Corporation Tax Act 2009

Is the distinction relevant?

An objective approach is normally taken to mean one that is unaffected by the personal views of the person making the decision or judgement. In contrast, a subjective decision would vary according to the particular preferences of the person making the judgement.

In Robinson v Scott Bader Co. Ltd [1981] 54 TC 757 (see BIM38250), Walton J said at page 767:

`It follows from all this that the test [in what is now S54(1)(a) Corporation Tax Act 2009] is subjective, and not an objective one - ie the relevant question is “What was the object of the person making the disbursement in making it?”, not, “What was the effect of the disbursement when made?”…’

So Walton J is saying that you should be concerned with the purpose of the expenditure rather than the result. This is very much in contrast to capital/revenue issues (see BIM35320). This is made very clear in Bentleys Stokes & Lowless v Beeson [1952] 33 TC 491 (see BIM37400). The introduction of terms like ‘subjective’ and ‘objective’ does not help decide the real issue.