Wholly and exclusively

By Tolley

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

  • Wholly and exclusively
  • The basic principles
  • Matters of law
  • Distinguishing facts
  • Remoteness principle
  • Duality of purpose
  • Earning profit
  • Deciding whether expenditure passes the wholly and exclusively test

For both income tax and corporation tax purposes, one of the fundamental conditions for tax relief is that expenditure is incurred ‘wholly and exclusively’ for the purposes of the trade, profession or vocation (henceforth just ‘trade’). References to CTA 2009 apply for companies and references to ITTOIA 2005 apply for sole traders and partnerships. However, they both derive from ICTA 1988, so case law is applicable to corporation tax and income tax equally.

CTA 2009, s 54; ITTOIA 2005, s 34

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 is exactly meant by the term. Consequently, HMRC 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 (subscription sensitive).

The basic principles

The ‘wholly and exclusively’ test can only be satisfied if the taxpayer’s sole purpose in incurring the expenditure is for the purposes of his trade. There are two questions 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 for the sole purpose of the trade.

The question of fact is whether expenditure is used for the sole purpose of the trade.

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


Further to this there are specific principles or tests which are applied in assisting decisions as to whether expenditure is in fact used for the sole purpose of the trade. These are:

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