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HMRC internal manual

Business Income Manual

Deductions - scope of: business or non-business expense

S34(1)(a) Income Tax (Trading and Other Income) Act 2005, S54(1)(a) Corporation Tax Act 2009

No deduction is allowed for expenditure not incurred wholly and exclusively for trade purposes. It is a question of law whether expenditure is capable of satisfying the test (see CIR v Dowdall O’Mahoney & Co Ltd [1952] 33TC259 (see BIM37035) and Boarland v Kramat Pulai Ltd [1953] 35TC1 - see BIM37035). But if an expense is capable of satisfying the test, it is a question of fact whether it was incurred solely for business purposes, ie for the purposes of the trade.

Where the issue is one of fact, the decision of the First-tier Tribunal can only be overturned on appeal to the Upper Tribunal if, exceptionally, it can be shown that there was no evidence on which they could reasonably have reached their decision. See Edwards v Bairstow & Harrison [1955] 36TC207 for the principle and for the reluctance of the courts to intervene in this context.

For an expense to satisfy the ‘wholly and exclusively’ test, the business purpose must be the sole purpose. Where there is no objective yardstick by which any business element can be distinguished from the non-business element, a non-trade or private purpose precludes deduction from trading profits in full.


Newsom v Robertson [1952] 33TC452 BIM37605
Knight v Parry [1972] 48TC580 BIM37960
Murgatroyd v Evans Jackson [1966] 43TC581 BIM37950
Prince v Mapp [1969] 46TC169 BIM37945
Caillebotte v Quinn [1975] 50TC222 BIM37660
Sargent v Barnes [1978] 52TC335 BIM37630
Watkis v Ashford, Sparkes & Harward [1985] 58TC468 BIM37925

But see BIM42115 regarding circumstances in which a sum may be apportioned.

Incidental benefit

An expense incurred for the purposes of the trade may also necessarily involve a benefit to a third party. It is not disallowable under the ‘wholly and exclusively’ test because of the incidental benefit or result provided that it was not part of the purpose in incurring the expense to secure that benefit.

The problem is to distinguish an incidental or unsought benefit, or the furtherance of some non-business objective, from the purpose of the expenditure. For detailed discussion of incidental benefits see BIM37400.

See BIM37000 onwards for detailed discussion of the ‘wholly and exclusively’ test. There is an overview at BIM37007.