Key points on the duality of purpose for trading expenses
The tax legislation1 explicitly provides that the 'wholly and exclusively' rule does not prohibit a deduction for a proportion of the expenditure where:
• an expense is incurred for more than one purpose, and
• an identifiable part or proportion of the expense is incurred wholly and exclusively for the purposes of the trade
Of course, whether such an expense is ultimately allowed also depends on whether it is covered by some other prohibition.
Similarly, no deduction is allowed for any loss which is not connected with or arising out of the trade2.
In determining whether expenditure is incurred wholly and exclusively for the purpose of the trade, it is necessary to have regard to what the taxpayer had in mind at the time it was incurred3. Difficulty arises where there is clearly some purpose relating to the business in question but where the expenditure may have some personal element in the context of an individual, such as the provision of food, clothing or other personal benefit to an individual trader4. In the case of a company, there may also be a consequential benefit to some other person, for example another company in the same group5.
The Tribunal is not confined to the particular conscious motive in the taxpayer's mind at the time of the expenditure6, but must take into account the surrounding circumstances. Where an effect not connected with the business must inevitably follow as a result of the