B2.315 The concept of wholly and exclusively
The tax legislation provides that no deduction is generally available for any expense which is not wholly and exclusively incurred for the purposes of the trade1. ITTOIA 2005 and CTA 2009 do not attempt to set out a test for determining whether expenditure is 'wholly and exclusively' incurred for this purpose.
The question whether expenditure is capable of satisfying the 'wholly and exclusively' test has been held to be one of law2.
Once this is established, it is a question of fact whether it is incurred wholly and exclusively for the purposes of the trade3.
Even where it can be determined that an item of expenditure has been incurred wholly and exclusively, other factors, such as whether the item is capital or revenue, or whether there are any specific statutory provisions which deny a deduction, must also be considered. See B2.304.
As a general principle, the purpose for which the expenditure is paid out should be considered in the context of the taxpayer's trade, rather than the purpose to which the funds were applied by the recipient. In Icebreaker 1 LLP4 it was held that a payment of £1.064 million (as part of a larger global payment of £1.273 million) by the appellant to a film distribution company was not expended wholly and exclusively for the purposes of the appellant's trade.