Discuss the phrase “wholly and exclusively for the purpose of the business” – what kind of expenditure does it exclude? What do you understand by the terms “remoteness” and “duality of purpose”?
The phrase” wholly and exclusively for the purpose of business” would means the taxpayer or company sole purpose for incurring the business expenditure is only for their trade or business. Any purposes that not related to trade or that if the business expenditure would consist of two or more business purposes would not qualify as being wholly and exclusively for the purpose of trade. In the case of Cooke v Quick Shoe Repair Service,  30TC460, the taxpayer had purchased a shoe repair business from a vendor but the vendor was unable to settle some trade liabilities. The taxpayer would pay certain sums to its suppliers out of goodwill to ensure business continuity and settle the vendor’s debts. The taxpayer would later proceed to claim for a trade deduction for these expenses for that period of trading. The High Courts and the Commissioners would allowed the deduction to go through as they viewed the expenditure to be wholly and exclusively for the purpose of the business. The judge, Croom-Johnson would also allow the deduction to go through as he viewed the money being spent was to preserve an asset which in this case was the goodwill of supplier to ensure business continuity. I would have to agree with the judge in that the expenditure to be revenue in nature as the vendor would lose his business creditability if he does not have supplies in time to deal with more customers which in turn would hurt his trade’s profitability. Business expenditures are operating costs that are incurred by businesses to carry out their trade in generating profit. They can be categorized into the following: Capital expenses, personal expenses & lastly business expenses. Capital expenses are defined as the cost spent to acquire or upgrade long term assets such as buildings, land or machineries. An example would be the costs of renovations being made to existing buildings. If the expenditure would bring an enduring benefit to the business, it would deem to be capital in nature. Personal expenses would be normally be defined as expenses of an individual. These expenses would include depreciation and repairs, entertainment for business purposes or a trader’s own wage. Capital allowances are still allowed in certain private expenses under the Capital Allowances Act 2001. Personal expenses are normally not deductible unless specifically allowed under the tax law. Examples would include cost of safety clothing and personal property tax to be paid for private property. Lastly, business expenses are the costs a business incur to carry out its trade on day to day basis in order to generate profit. Such business expenses include employee wages, rental costs and business loans interest or maintenance fees. They are deductible from the calculations of trading profits if they are being incurred wholly and exclusively for the purpose of the business. The sole purpose of such expenditure must be for the purpose of the trade. Any business expenses being incurred in order to earn profits are known as revenue expenditure. In another case of Linslade Post Office and General Store v HMRC  UKFTT 457, Mr Shabir Visanji had a business partnership with his brother Mr Salim Visanji were embroiled in a legal dispute against their sister Mrs Shabnam Rehemtulla who claimed that she contributed her share of capitals into the partnership and therefore entitled to its profits as well. The brothers won the lawsuit in the end and wanted to claim deduction for the legal fees in defending their partnership against their sister. HMRC argued that legal fees should not be deductible trade expenditure as it was disallowed as not being incurred “wholly and exclusively” for the purpose of trade by sections 33 and 34 of ITTOIA 2005 that legal or professional fees incurred for...
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