Wholly and exclusively

The title of this posting describes an important concept when considering claims for expenditure to reduce our tax bills.

By and large, HMRC will accept claims that have been expended wholly and exclusively for the purposes of running a business or fulfilling your employment obligations. But what does this phrase actually mean?

Certainly, if you are making claims based on your employment: subscriptions to professional bodies, travel costs, the cost of uniforms, all of which you have paid for, may qualify for a claim. Pound for pound these expenses will reduce your income subject to tax and your tax liabilities.

Obviously, if your employer or business has met the costs, you cannot make a further claim.

There are certain categories of expenditure that can be recovered in this way. For the self-employed they include:

  • office costs, e.g. stationery or phone bills
  • travel costs, e.g. fuel, parking, train or bus fares
  • clothing expenses, e.g. uniforms
  • staff costs, e.g. salaries or subcontractor costs
  • things you buy to sell on, e.g. stock or raw materials
  • financial costs, e.g. insurance or bank charges
  • costs of your business premises, e.g. heating, lighting, business rates
  • advertising or marketing, e.g. website costs

The test you need to apply is always: is the expenditure incurred wholly and exclusively for the purpose of your trade or employment.

HMRC recently published a list of the more outlandish claims they received as part of the 2014-15 tax returns. They included:

  1. Holiday flights to the Caribbean
  2. Luxury watches as Christmas gifts for staff – from a company with no employees
  3. International flights for dental treatment ahead of business meetings
  4. Pet food for a Shih Tzu ‘guard dog’
  5. Armani jeans as protective clothing for painter and decorator
  6. Cost of regular Friday night ‘bonding sessions’ – running into thousands of pounds.
  7. Underwear – for personal use
  8. A garden shed for private use – plus the costs of the space it takes up in the garden
  9. Betting slips
  10. Caravan rental for the Easter weekend.

Readers who are uncertain if the costs they have incurred can be included in their business accounts, or claimed by employees on their tax return, should call for advice. Although the wholly and exclusively rule applies in most cases, there are situations where the “exclusivity” part can be more of a grey area, for example where there is business and a private use element.

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