B2.319 Duality of purpose—apportionment of the expenditure
The tax legislation1 provides that an expense which is incurred for more than one purpose, does not automatically result in the entire expense being non-deductible. The expenditure must be capable of division into distinct elements, one or more of which is incurred wholly and exclusively for the purposes of the trade. Unfortunately, the legislation does not provide any further guidance on how the apportionment should be made, although the cases set out below provide some guidance as to the approach that is likely to be taken by the courts.
Where a single payment does in fact represent a number of items of expenditure this should present no problems. In Lochgelly Iron and Coal Co Ltd2, the company paid a levy to an association of coal-owners and the association spent its levies on a variety of objects. The court held that the association's computations should be analysed, and that a proportion of the company's levy corresponding to the allowable proportion of the association's total levy, could be deducted by the company.
Where, however, the payment is in respect of a single item of expenditure, but one which is not shown to be wholly and exclusively incurred for the purposes of the trade, an element of it may still be deductible. Thus, in Stott and Ingham3, where a father employed his sons in his business and paid them, by way of commission, sums disproportionate to the values of their services, it was held that the excesses over