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HMRC internal manual

Business Income Manual

Wholly and exclusively: case law: contents

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

Introduction and layout of guidance

Cases on this subject show that, either the expenditure (as a question of fact) was incurred wholly and exclusively for the purposes of the trade profession or vocation, or it was not. In theory, the nature of the expenditure could be the same but, on the facts, in one case the expense might be found to have been incurred for the purposes of the trade and in another case it might not be found to have been so incurred.

The important point is not what the money was spent on but the payer’s purpose in spending the money. This is very much in contrast to capital/revenue issues where the focus is entirely on the effect of the expenditure (see BIM35320).

Other than in the class of cases where there is a subconscious private purpose (and which leads to disallowance on the grounds of duality, see BIM37900), a court decision to disallow an expense in a particular case is not a precedent for disallowing that expense in all other cases. You need to establish the payer’s purpose or purposes in each individual case. It is entirely possible that expenditure that fails the statutory test in one case, passes it in another and vice versa. If the purpose, or one of the purposes, of the expenditure was other than wholly and exclusively for the trade, profession or vocation then the expenditure fails the statutory test in S34(1)(a) Income Tax (Trading and Other Income) Act 2005 (for unincorporated businesses) and S54(1)(a) Corporation Tax Act 2009 (for companies).

The nature of the statutory test precludes drawing up lists of allowable and non-allowable expenditure. It is not as a rule possible to say this or that expense by reference to its nature alone is or is not allowable. Save in those few categories of expense where there may be an inevitable non-trade purpose (see BIM37900), you will need to make careful enquiry into the taxpayer’s purpose. It is important that you establish the facts before entering into argument.

Over the years, judges have offered various glosses or interpretations of the words of the statute. Such glosses and interpretations can be helpful in the context in which they were used but can be misleading if applied out of context; at times leading to the incorrect conclusion. It is important to remember at all times that the words of the statute take precedence. Where a particular judicial quote seems to point to a contrary conclusion to the words of the statute then you should always follow the statute.

The body of relevant case law is discussed below under various broad headings: