B2.316 Is the expenditure incurred only for the benefit of this trade?

B2.316 Is the expenditure incurred only for the benefit of this trade?

The application of the statutory phrase 'wholly and exclusively for the purposes of the trade'¹ involves an inquiry into three related, and at times indistinguishable, questions:

1.  

   •     Is the expenditure incurred for the purposes of the trade?

2.  

   •     Is it wholly so incurred?

3.  

   •     Is the trade purpose the exclusive purpose?

Consideration of these questions has to a great extent concentrated on the final point of exclusivity, if only because there is normally some trade purpose behind the incurring of expenditure which is sought to be deducted and the question is then whether that purpose was tainted by other considerations. However, an early case in which the question arose as to whether the expenditure was itself 'for the purposes of the trade' was Strong & Co Ltd². There, the taxpayer company carried on a trade as innkeeper and sought to deduct an amount of damages paid to a guest who was injured when a chimney on premises owned by the company fell in. In the course of his judgment Lord Davey said³:

'I think that the payment of these damages was not money expended “for the purpose of the trade”. These words are used in other rules, and appear to me to mean for the purpose of enabling a person to carry on and earn profits in the trade, etc. I think the disbursements permitted are such as are made for that purpose. It is not enough that the disbursement