The following Owner-Managed Businesses guidance note Produced by Tolley provides comprehensive and up to date tax information covering:
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.
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:
the principle of remoteness
the principle of duality
the principle of earning profit ― the capacity test
**Free trials are only available to individuals based in the UK. We may terminate this trial at any time or decide not to give a trial, for any reason.
Access this article and thousands of others like it free for 7 days with a trial of TolleyGuidance.
Read full article
Already a subscriber? Login
If the taxpayer does not have sufficient information to enable them to complete the tax return in the time allowed, they should include either a best estimate or a provisional figure. The taxpayer should not either leave a box blank or enter ‘details to follow’ as HMRC will regard this as an
Introduction to the regimeThe aim of the patent box regime is to provide an incentive for companies to develop and retain patents and other qualifying intellectual property within the UK as part of the Government’s growth agenda. Finance Act 2012 originally introduced the legislation governing the
What is transfer pricing?Transfer pricing is the prices at which an enterprise transfers either physical goods, intangible property or services, including financing arrangements, to associated enterprises. Generally, enterprises are associated if there is direct or indirect control by one of the
Terminal loss relief for trade losses in the final 12 monthsTrading losses incurred by a company in the final 12 months leading up to the discontinuance of trade may be carried back for up to three years from the period beginning immediately before that 12-month period. So if the final accounting