4. Trading Income - DE Flashcards
What is a DE?
1) Income, not capital, expense (s.33)
2) incurred wholly and exclusively for purpose of trade (s.34)
3) facilitate earning of profit (strong v woodifield)
Morgan v Tate & Lyle
FOR PURPOSE OF TRADE (S.34(1))
- sugar refining company incurred expense in propaganda campaign to oppose threatened nationalism
- expense was to preserve assets of company from seizure and therefore enable them to carry on and earn profits
- couldn’t assume trade would continue after nationalism
Healy v R & C Comrs
- flat one mile from theatre he was working in
- not WHOLLY AND EXCLUSIVELY because he had a 3 bedroom flat which he had guests stay over in
Mallalieu v Drummond
female barrister trying to deduct cost of clothes for wearing in court
- look at conscious or subconscious PURPOSE (if that is for trade = deductible)
- INCIDENTAL BENEFITS DON’T MATTER
- they said her subconscious purpose wasn’t trade but to look decent
Watkis v Ashford Sparkes and Harvard
FOOD/DRINK AT MEETINGS - not DE, it satisfied human needs of solicitors and took place of meals they would otherwise have consumed
ACCOMODATION, food and drink for partners at hotel at ANNUAL CONFERENCE - was DE, private benefit was purely incidental, accommodation was to allow business discussions the next morning
Vodafone Cellular Ltd v Shaw
payment to terminate contract which required V to make annual payment for technical support
- benefited all 3 companies
- DE BECAUSE PURPOSE WAS TO RELIEVE V OF TRADING LIABILITY of V ALONE
- so wholly and exclusively
- didn’t matter that V’s directors considered all 3 entities as a single trading entity
Strong v Woodifield
TO FACILITATE EARNING OF PROFIT
- not DE
- payment was paid as BUSINESS OWNER not as trader
- loss not arising out of trade
McKnight v Sheppard
stockbroker incurred legal expenses to defend disciplinary proceedings
- DE because HL said the sole object of expenditure was to preserve the business
British Insulated etc v Atherton [1926]
enduring benefit test
Gives basic rule: is it for the enduring benefit of the trade?
If yes – good reason for treating the expenditure as capital
Tucker v Granada
identifiable asset test
- identify if asset bought is a capital asset, if yes, then the expenditure is not DE
Odeon Theatres v Jones (short version)
repairs on a purchased cinema, source of revenue not capital (cinema was a profit-earning asset when purchased despite its disrepair)
Law Shipping v IRC
51k spent to make it seaworthy = NOT DEDUCTIBLE because it is an IMPROVEMENT (cost of repair is equivalent to addition to the price)
DAMAGE FROM ONE JOURNEY - deductible because that damage is recurrent and repair = revenue expense
Odeon Theatres v Jones
money spent on repair on cinema purchased in rundown condition
= DE REPAIR
ONE – cinema was a profit-earning asset when purchased despite its disrepair
TWO – purchase price was not reduced because of that disrepair
THREE – CA accepted that the expenses were deductible in accordance with the principles of proper commercial accounting
Transco Plc v Dyall
MONEY spent on inserting pipes of polyethylene in certain iron/steel pipes (comply with H&S Legislation)
- DE REPAIR
- doesn’t increase market value
- small amount each year, on-going, recurrent
- repair = complex whole renewed/replaced
- improvement = substantial whole reconstructed
- here it is repair
Mitchell v noble
company paid director to retire
- DE
- CA said it was W&E
- save company from scandal
- enable directors to continue business as it had in the past unfettered by presence of retiring director
Bamford v ATA Advertising
director misappropriated sums
- loss not deductible
- actions no connection w carrying on trade
- loss not incident on taxpayer’s trading activities so loss is not arising out of trade
Newsom v Robertson
barrister in London travelled from his house in Whispnade
- NOT DE for travel expense because it isn’t wholly and exclusively for purpose of profession
- partly about making his workplace separate to his home
Horton v Young
labour subcontractor operated from his home - costs incurred in collecting team of bricklayers and travelling to the building site
- DE because his business base and place where customers knew he would be found = home
- still exclusively for purpose of business because returning to base after working on a site during the day
Sargent v Barnes
Dental surgeon called at his dental laboratory on his journeys between home and his surgery to collect dentures and to discuss work with technician
- NO DE
- not wholly and exclusively for purpose of trade
Powell v Jackman
milkman on his round – not DE
office work at home but thats no different to other self-employed people
- so not DE
Samadian v HMRC [
EMPLOYEE OF NHS at TWO hospitals and self-employed consultant of two private hospitals (held weekly out-patient sessions)
- cost of travel between NHS hospitals and private hospitals NOT DE
object of the travel is to carry business away from place of employment and away from place of home
Bowden v Russell & Russell (1965)
Solicitor’s expenses incurred in travelling abroad partly for a holiday and partly to attend professional conferences was disallowed
Edwards v Warmsley, Henshall & Co
BUT expenses incurred by an accountant in attending a profession conference abroad was allowed
IRC v Alexander von Glehn [1920]
fines are not allowed as deductions against trading income
- its connected to trade but it isn’t paid for purpose of trade (paid because of wrongful act on part of company)
McLaren Racing Ltd v HMRC [2014]
fine imposed for breaking sporting code
- fine was not tax deductible
Allen v Farquharson
costs of pursing an appeal against an assessment are not allowable
McKnight v Sheppard
legal cost in protecting business = deductible
Netlogic Consulting [2005]
cost of holding a function for portential customers as advertising/promotional = DE
- money spent is entertainment but main purpose was for N to meet potential customers so it was a promotional purpose (entertainment is just incidental)
