In the case of The Carlisle and Silloth Golf Club v Smith [1913] 6TC48 & 198 Hamilton J rejected the so-called ‘marginal cost’ approach. Addressing the problem of determining the quantum of assessment, Hamilton J tells us at page 58:
…it was suggested that possibly the gross amount of the green fees would be the sum in respect of which the assessment should be made; because there was no finding at any rate that the whole of the items on the debit side would not have been incurred just the same for the members if there had been no visitors. I need not decide that contention, because it does not seem to me to be really before me; but I should hesitate long before I accepted it. It appears to me that the profits must be the real profits, the net profits, and that can only be arrived at after ascertaining whether there is not, as one certainly would expect there would be, something to come off the gross before arriving at the net sum.
Hamilton J therefore gives no support to the view that as the
costs of providing golfing facilities would have been incurred in
any event no allowance for such expenditure is available in
computing the amount of the taxable profits arising from the
club’s dealings with non-members.
The courts still follow this general approach. For example,
in Korner and Others v CIR [1969] 45TC287 Lord Upjohn tells us at
page 297G:
This practice [apportioning expenditure] is very old, works great justice between the Crown and the subject, and I trust will never be disturbed. Thus, speaking generally, the grocer living above his shop, the doctor who has a surgery in his house and the barrister who works in his house where he keeps or brings his law books and works on his briefs in the evenings and at weekends is allowed by the Crown a reasonable sum in respect of the necessary upkeep of his dwelling as being properly attributable to his trading or professional activities.
In Wildbore v Luker [1951] 33TC46 Roxburgh J says at page 51:
The Attorney General has not asked me to say that if some part of the rates are for private purposes the whole must be disallowed; he has not asked me to say that. I think it is possible that on a literal construction of the Rule [what is now ICTA88/S74 (1)(a)] that might be the result but it has never been the practice and the Attorney-General has not asked me to say so.
And in McLaren v Mumford [1996] 69TC173 at page 184I Rimer J describes a part of the Revenue’s argument as:
For the Crown, Mr Brennan submitted that the expenditure in this case served a dual purpose, both private and business, and that although S74(c) refers expressly to apportionment of expenditure (in relation to rent) it has long been the practice of the Revenue to accept that, in circumstances such as the present, an apportionment such as that directed by the Commissioners can properly be made.
In the Silloth Golf Club case Hamilton J tells us at page 58 of 6TC that the case has to go back to the Commissioners to ascertain:
…what is the real apportionment of the total expenses of the club on common items which falls to the visitors and does not fall to the members.
Hamilton J also tells us at page 56 of 6TC:
…I think if it were worth while to incur the expense it would be possible by taking the experience of the working of this or similar clubs over a period of years, and by examining the number of persons of each class using the club and the links and the times of the year at which they do so and the numbers at particular times in which they congregate together, to ascertain with real arithmetical accuracy what proportion of the club’s gross expenditure upon house and grounds is attributable truly to the user by the visitors in respect of which the green fees are receivable.
Clearly Hamilton J sees no difficulty in apportioning
‘common’ items or expenditure on ‘house and
grounds’. In practice you will need to establish all the
facts as to how the entity in question organises it affairs, what
expenses relate solely to members, what expenses relate solely to
non-members and how the ‘mixed’ expenses may reasonably
be apportioned.
An approach that has proved useful in the case of
members’ golf clubs is described in
BIM24470. The members’ golf club
is not conducting a mutual trade with its members; rather it is not
trading at all. But the principles behind the apportionment
mechanism are equally applicable to mutual traders who also trade
with non-members.
