Chapter BIM37400
| Published date | 22 November 2013 |
| Record Number | BIM37400 |
| Court | HM Revenue & Customs |
| Issuer | HM Revenue & Customs |
S34 Income Tax (Trading and Other Income) Act 2005 (ITTOIA 2005), S54 Corporation Tax Act 2009 (CTA 2009)
No bar to allowance if the purpose is wholly and exclusively for the trade, profession or vocationAn expense may of necessity provide a benefit to a third party. For example, the supplier of goods to the trader is likely to profit from the transaction.
Equally the trader in his or her own personal capacity may benefit from the expenditure. For example, the trader in the course of his or her business may meet interesting people or travel to desirable destinations.
But an expense is not disallowed by S34(1)(a) ITTOIA 2005 (for unincorporated businesses) and S54(1)(a) CTA 2009 (for companies) because the trader (or third party) obtains an incidental or personal benefit provided that it was not part of the purpose in incurring the expense to secure such benefit. The problem you will face is how to distinguish between:
- an incidental or unsought benefit, and
- the furtherance of some non-trade objective
The possibility that an ‘incidental benefit’ may accrue means you cannot decide ‘wholly and exclusively’ issues by reference only to the effect(s) that follow from the payment. You must establish all of the facts from which you may infer the trader’s purpose (or purposes).
The issue is described in the case of Bentleys, Stokes & Lowless v Beeson [1952] 33 TC 491. The case concerned the cost of lunches incurred by partners in a firm of solicitors in entertaining existing clients and where business matters were discussed. The case concerned the law as it applied prior to the statutory disallowance for expenditure on entertaining, in what is now S45 ITTOIA 2005 and S1298 CTA 2009. The lunch appointments were so arranged as to allow the discussion of any business in hand and the giving of any legal advice required. Only the partner concerned and the client (or their representative) was present on each occasion and the legal advice was charged in the normal way.
The Commissioners found that the entertainment involved an element of hospitality and concluded that the expenditure was not allowable. The courts decided that the finding that the lunches involved the provision of hospitality did not conclude the matter. There was no evidence in the stated case to suggest that this was private or social hospitality and not business hospitality. The question was therefore - is the cost of the lunches money expended wholly and exclusively for the purposes of the...
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