BIM37025 - Wholly & exclusively: statutory background: expenses rule for employees

Other legislation using ‘wholly and exclusively’

The words ‘wholly and exclusively’ also appear in the expenses rule for employees, ITEPA03/S336 (previously ICTA88/S198). The rule says that an employee or office holder may deduct expenses incurred wholly, exclusively and necessarily in performing the its duties.

There have been a number of occasions when judges considering a Schedule D ‘wholly and exclusively’ case have referred to judgements on the Schedule E expenses rule. For example in Mallalieu v Drummond [1983] 57TC330 (see BIM37910) Lord Brightman (at page 370) specifically refers to the decision in Hillyer v Leeke [1976] 51TC90, a Schedule E case about an employee’s clothes. In the judgement in Hillyer v Leeke, Goulding J said that the cost of buying clothes is not wholly or exclusively incurred in the performance of the duties of the employment. An individual has to wear clothes for his own purposes of cover and comfort at the same time as wearing them in order to have the appearance that the job requires:

The case before your Lordships is indistinguishable in principle from Hillyer v Leeke 51 TC 90. That case arose under Schedule E, but the ratio of the first ground of decision is equally applicable to Schedule D. The taxpayer was a computer engineer. His work involved travelling to the establishments of his firm's customers. His employers required him to wear a suit. When present on a customer's premises he might be called upon to assist the customer's engineer at short notice without an opportunity to change into overalls or a boiler suit. The taxpayer therefore maintained two working suits which he wore only for the purposes of his work. He claimed a deduction of £50 for their upkeep. This was disallowed by the Inspector. The Commissioners confirmed the assessment. I read the following passages from the judgment of Goulding J. which seem to me to be correct and in point [51TC, at page 93]:

The truth is that the employee has to wear something, and the nature of his job dictates what that something will be. It cannot be said that the expense of his clothing is wholly or exclusively incurred in the performance of the duties of the employment ... In the case of clothing the individual is wearing clothing for his own purposes of cover and comfort concurrently with wearing it in order to have the appearance which the job requires ... Does it make any difference if the taxpayer chooses, as apparently Mr. Hillyer did, to keep a suit or suits exclusively for wear when he is at work? Is it possible to say, as Templeman J. said about protective clothing in the case of Caillebotte v Quinn [1975] 50TC222 [seeBIM37660], that the cost of the clothing is deductible because warmth and decency are merely incidental to what is necessary for the carrying on of the occupation? That, of course, was a Schedule D and not a Schedule E case, but the problem arises in a similar way. The answer that the Crown makes is that where the clothing worn is not of a special character dictated by the occupation as a matter of physical necessity but is ordinary civilian clothing of a standard required for the occupation, you cannot say that the one purpose is merely incidental to the other. Reference is made to what Lord Greene M.R. said in Norman v Golder [1944] 26TC293 [seeBIM37940], at page 299. That was another case under Schedule D, but again, in my judgment, applicable to Schedule E cases, where the learned Master of the Rolls said, referring to the food you eat and the clothes that you wear: 'But expenses of that kind are not wholly and exclusively laid out for the purposes of the trade, profession or vocation. They are laid out in part for the advantage and benefit of the taxpayer as a living human being.' In my judgment, that argument is conclusive of the present case, and the expenditure in question, although on suits that were only worn while at work, had two purposes inextricably intermingled and not severable by any apportionment that the Court could undertake.

To the extent that the judgements did not turn on the additional requirement that the expenditure be ‘necessary’ then employment cases can give a useful insight on the meaning of ‘wholly and exclusively‘.

You should note that ICTA88/S74 (1)(a) does not include the requirement in the expenses rule for employees that the expenditure be ‘necessary’. Whilst it is reasonable to scrutinise the claimed purpose of an expense you should not attempt to substitute your own judgement for that of the taxpayer. If the taxpayer can show that their only purpose for incurring a particular expense was for their trade, profession or vocation then it does not matter that the same result could have been achieved by different means or that the expenditure in the event fails to achieve the established purpose. Expenditure that is manifestly uneconomic may be an indication that there was another (non-business) reason for it being incurred, in which event you should disallow it.

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