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Business Income Manual

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Wholly and exclusively: duality of, or non-trade, purpose: non-travel topics: accommodation and subsistence

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

Cost of food and drink, taken in whole or in part for sustenance, is not deductible

The case of Prior v Saunders [1993] 66 TC 210 concerned a claim by a subcontractor to deduct the cost of subsistence and accommodation. On the facts established, the claim was denied.

For most of the period from November 1984 to February 1989, Mr Saunders was a self-employed ceiling fixer. He worked mainly in the London area, and lived, and stored his ceiling-fixing tools, in rented accommodation in that area until April 1988 when he went to live in Bournemouth where he bought a house. Throughout the period he had rented a garage in Bournemouth in which he stored some steel-erecting equipment.

Mr Saunders sought deductions in respect of subsistence, motor and travel expenses, and use of his home for trade purposes. The General Commissioners allowed Mr Saunders’ appeal. The Crown appealed, except as to the motor and travel expenses.

The High Court allowed the Crown’s appeal, holding that:

  • money spent on food was not wholly expended for the purposes of trade within what is now S34(1)(a) Income Tax (Trading and Other Income) Act 2005 under Caillebotte v Quinn [1975] 50 TC 222 (see BIM37660)
  • the elements of the rental payments claimed to be deductible in respect of storage were not deductible because they were paid out principally in the way of rent for Mr Saunders’ accommodation. There was no ground for any deduction in relation to the use of Mr Saunders’ home in Bournemouth

The amount claimed for storage was the cost of the taxpayer’s personal accommodation whilst in London. The judge said that the amount claimed for ‘use of home’ on the facts of this case was not wholly and exclusively expended for the purposes of the taxpayer’s trade; it was for personal accommodation.

As ever with wholly and exclusively cases, the facts are very important. The rent for the taxpayer’s personal accommodation in London could not be re-characterised as a business expense simply because the taxpayer kept his tools with him. See BIM37600 for circumstances where expenditure on accommodation may be apportioned.

The part of Sir Mervyn Davies’ judgment on which the above guidance is based is set out below (pages 219A-219D of 66TC):

‘In my view, those deductions were not rightly allowed. Any money spent on food is not wholly expended for the purposes of trade [see Caillebotte v. Quinn [1975] 50TC222 (see BIM37660)]. Equally, the £20 a week for storage is not deductible because the £20 was not paid out wholly for the purposes of trade. It was paid out principally in the way of rent for the taxpayer’s accommodation. It follows that, in my view, the Commissioners were in error in allowing a deduction of £1,615 in respect of the period 15 November 1984 to 30 November 1985. By the same reasoning the sums of £1,727 for the year ended 30 November 1986, £1,336 for the year ended 30 November 1987 and £1,404 for the period 1 December 1987 to 20 February 1989 ought not to have been allowed. The Commissioners allowed a use of home deduction in the sum of £63 for the period 1 December 1987 to 20 February 1989. That deductible item was, as were all the other deductible items, said to be deductible under the provisions of [S34]. I do not see how a use of home deduction can be related to [S34]. Furthermore, the evidence does not show that a use of home deduction can be justified on any other ground in this case. It follows that the Commissioners were in error in allowing the deductible sums of £1,615, £1,727, £1,336, £1,404 and £63 that I have mentioned. The appeal is allowed and the matter is to be remitted to the Commissioners.’