Wholly and exclusively

Produced by Tolley

The following Owner-Managed Businesses guidance note Produced by Tolley provides comprehensive and up to date tax information covering:

  • Wholly and exclusively
  • Wholly and exclusively ― the basic principles
  • Wholly and exclusively ― intrinsic duality
  • The wholly and exclusively tests
  • The remoteness test
  • The capacity test
  • Deciding whether expenditure passes the wholly and exclusively test
  • Apportionment of expenditure between trading and non-trading elements

Wholly and exclusively

For both income tax and corporation tax purposes, one of the fundamental conditions that must be satisfied for an item of expenditure to be deductible, is that it must incurred ‘wholly and exclusively’ for the purposes of the trade, profession or vocation. References to CTA 2009 apply for companies and references to ITTOIA 2005 apply for sole traders and partnerships.

While the legislative basis for this is brief, it is a complex issue and there is a significant body of case law devoted to determining what exactly is meant by the term, in the context of a wide variety of trades and expenses. Consequently, HMRC’s manuals devote a significant number of pages to the subject. See BIM37000–BIM38600 for the scope of HMRC’s reference on this subject.

This guidance note discusses the broad principles, key cases and how to approach determining whether an expense is allowable.

See also Simon’s Taxes B2.315–B2.324.

Wholly and exclusively ― the basic principles

The ‘wholly and exclusively’ test can only be satisfied if the sole reason for incurring the expenditure is for the purposes of the trade in question. There are two matters for consideration in determining if this is the case, one of law and one of fact.

The question of law is whether expenditure is capable of being incurred wholly and exclusively for the purpose of the trade.

Having determined that the expense is capable of being incurred in this way, it is necessary to determine whether the expenditure was in fact incurred for the sole purpose of the trade in question.

These two questions determine firstly whether any deduction is allowed for tax purposes and, secondly, how much of a deduction is allowable.

Other specific principles or tests have been developed over time which are applied in ascertaining whether expenditure is in fact used for the sole purpose of the trade. These are:

  1. the principle of remoteness

  2. the principle of duality

  3. the principle of earning profit ― the capacity test

The

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