At the very heart of direct taxation for the self-employed is the concept of “wholly and exclusively for the purposes of the trade”. In order for an expense to be tax deductible the sole purpose of the expense must be for the trade. If there is any duality of purpose ie a non-trade or private purpose that will preclude any deduction for the expenditure.
I am sad to say that on more than one occasion has this come as a shock to the trader who informs me that his mate in the pub said it was ok to treat his holiday in Barbados as a business trip if he holds the company AGM with the Company Secretary (his spouse) whilst there. Clearly the sole purpose of the expenditure was not for the purpose of the client’s trade and will not be tax deductible.
An interesting case demonstrating these facts recently came before the Tax Tribunal in the form of Ms Daniels an exotic dancer whose claim for various items of expenditure including travel expenses, beauty treatments, lingerie and other apparel were rejected by HMRC who claimed that in making each of these items of expenditure there was a duality of purpose.
With regard to the travel expenses from home to the club, although Ms Daniels did have an office (ie a place of work) at home where she performed various administrative tasks the Tribunal decided that because the premises also represented her home, the travel was not only from one place of work to another, but it was travel from her home to work and therefore the expenditure had a dual purpose and was not incurred wholly and exclusively for the purpose of the trade.
Successful claims for clothing are famously difficult to obtain since the Court case of Mallalieu which established that a barristers garb ie wig and cloak, not only represented clothes she was required to wear in Court, but also provided her with warmth and decency and therefore had a duality of purpose. Nevertheless, Ms Daniels was successful on this occasion for her claims as the see-through dresses that she wore for dancing could not be worn outside and were so skimpy that they could not be described as providing warmth and decency. Furthermore, the shoes that she wore were designed for pole dancing and could not be worn outside.
Her claims for beauty treatments, make-up, perfume, hair and beauty treatments were all deductible as it was decided that they related solely for the purpose of her trade.
Consequently the taxpayer’s appeal was allowed in part.
Duality of purpose can often be a grey area for xeample, in many situations claims for clothing, any form of hair or beauty treatments, make-up and perfume would certainly fail . If you are not sure whether an expense would be classed as wholly and exclusively for the purpose of the trade it is always best to contact one of our team to check.