BIM37910 - Wholly and exclusively: expenditure having an intrinsic duality of purpose: Clothing

S34 Income Tax (Trading and Other Income) Act 2005 (ITTOIA 2005)

Different treatment for ‘uniform’, ‘costume’ and an ‘everyday wardrobe’

You should disallow expenditure on ordinary clothing worn by a trader during the course of their trade. This remains so even where particular standards of dress are required by, for example, the rules of a professional body.

The case of Mallalieu v Drummond [1983] 57 TC 330 (which is discussed in detail below) established that no deduction is available from trading profits for the costs of clothing which forms part of an 'everyday' wardrobe. This remains so even where the taxpayer can show that they only wear such clothing in the course of their profession. It is irrelevant that the person chooses not to wear the clothing in question on non-business occasions, the only question is whether the clothing might suitably be worn as part of a hypothetical person’s 'everyday' wardrobe.

Most professionals have to keep up appearances but their clothing costs are not allowable (even where they amount to a quasi uniform as in Mallalieu v Drummond).

The cost of clothing that is not part of an 'everyday' wardrobe (for example a nurse’s uniform or evening dress (‘tails’) worn by a professional waiter) faces no such bar to deduction.

You should therefore allow a deduction for protective clothing and uniforms.

Expenditure by performers in the public eye is discussed at BIM50160.

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'Civilian' (everyday) clothing used by a barrister

The case of Mallalieu v Drummond concerned the issue of whether a barrister was entitled to a deduction for expenditure on replacement and laundering of professional clothes.

The barrister, in accordance with Bar requirements, acquired and wore particular items of clothing, both in court and to and from the court to her chambers. The clothing was such as might be used for ordinary civilian purposes but she did not wear such clothing away from work. The barrister preferring to wear coloured clothes of a more adventurous style of which she had an ample supply. The wearing of her court clothes necessarily spared her private wardrobe from wear and tear but this was not a consideration in her mind when she bought the court clothes, any more than was the preservation of her warmth and decency. The barrister bought the court clothes only because she would not have been permitted to appear in court if she had not worn them.

The Inspector disallowed the barrister’s expenditure under what is now S34(1)(a) ITTOIA 2005. It was contended on the barrister’s behalf that the test whether her expenditure was 'wholly and exclusively' incurred 'for the purposes of her profession' was subjective. Moreover, the barrister’s expenditure did not cease to be wholly and exclusively incurred for such purposes simply because, in addition to achieving a professional purpose, it achieved an additional incidental effect.

The General Commissioners considered that when a barrister purchased court clothes the purpose was to enable them both to earn profits in their profession and to be properly clothed. The fact that the barrister’s sole motive in choosing the particular clothes was to satisfy the requirements of their profession or that if they had been free to do so they would have worn clothes of a different style did not alter the purpose of purchasing clothes. The purpose was to keep them warm and clad whilst they were pursuing their career as well as helping them to earn profits in that career. The Commissioners concluded that the expenditure had a dual purpose, one professional and one non-professional and was not allowable.

The High Court and the Court of Appeal found for the taxpayer but the House of Lords, by a majority of four to one, found for the Crown.

Lord Brightman began by describing how the arguments had developed during the course of the hearing. The issue progressed into a general and fundamental question: whether any person carrying on a trade, profession or vocation on their own account is entitled to a deduction if they choose to set apart clothes, underclothes and footwear for use only at their place of work, and when proceeding to and from their place of work.

Lord Brightman went on to describe the legislation that applied, what is now S34(1)(a) ITTOIA 2005, and how it had been interpreted over the years. The effect of this provision is to disallow expenditure unless the taxpayer can establish that it was exclusively incurred for the purposes of their trade, profession or vocation. The expenditure is disallowed if it serves any other purpose.

Lord Brightman continued with a description of the process to follow in order to establish if the taxpayer satisfies the statutory test; in particular the judge stressed the need to distinguish the object of the expenditure from the effect.

Expenditure may be made exclusively to serve the purposes of the business, but it may have a private advantage. The existence of a private advantage does not necessarily preclude the exclusivity of the business purposes. This is so when the private advantage is an incidental consequence of the expenditure rather than a purpose (see BIM37400).

Lord Brightman then reviewed the Commissioners’ findings of fact and the taxpayer’s evidence that her only purpose in buying the disputed clothing was to satisfy the requirements of her profession, giving no thought to the provision of warmth and decency. Lord Brightman stressed that there was nothing peculiar about the particular facts of this case. Lord Brightman referred to the wider implications of the case, namely the right of any self-employed person to maintain, at the expense of their gross income and therefore partly at the expense of the general body of taxpayers, a wardrobe of every-day clothes which are reserved for work. The taxpayer argued that if a barrister, male or female, chose to establish a wardrobe of clothes exclusively for working purposes, he or she would be entitled to deduct the cost of its upkeep. The question then arose whether this beneficent state of affairs would apply to other professional persons, such as solicitors, accountants, medical practitioners, trades people and persons in all other walks of self-employed life, and if not why not. The only distinction that could be drawn was that a barrister who wore unacceptable clothes would find themselves barred from pleading in court, as well as risking the loss of the goodwill of their clients. Other professional persons might be subject only to the latter sanction. It did not seem logical that the right of deduction should depend on the degree of the sanction that induced the professional person to equip themselves with subdued clothing. Furthermore, ’necessity’ is not part of the statutory test in what is now S34(1)(a) ITTOIA 2005 and therefore the existence of a sanction is wholly immaterial.

Lord Brightman explained why he could not follow the narrow approach of the lower courts, which had confined consideration to the barrister’s stated conscious purpose in acquiring the disputed clothing. The judge accepted that the taxpayer thought only of the requirements of her profession when she first bought (as a capital expense) her wardrobe of subdued clothing. The judge also considered that as and when she replaced items or sent them to the launderers or the cleaners she would, if asked, have repeated that she was maintaining her wardrobe because of those requirements. It is the natural way that anyone incurring such expenditure would think and speak. But she needed clothes to travel to work and clothes to wear at work, and he thought it inescapable that one object, though not a conscious motive, was the provision of the clothing that she needed as a human being. Lord Brightman rejected the notion that the object of a taxpayer is inevitably limited to the particular conscious motive in mind at the moment of expenditure. Of course the motive of which the taxpayer is conscious is of a vital significance, but it is not inevitably the only object which the Commissioners are entitled to find to exist. The Commissioners are entitled to infer that there is an inevitable private purpose in acquiring normal civilian clothing even when it is only used for the purposes of the trade, profession or vocation.

Finally, Lord Brightman explained that the costs of uniforms and protective clothing would not be disallowed by this decision. It is a question of fact and degree. The cost of specialist clothing required to discharge the duties of the trade, profession or vocation is allowable.

Given the importance of this case, a numbers of key extracts from Lord Brightman’s judgment are set out below.

The part of Lord Brightman’s judgment describing how the arguments developed during the course of the hearing is set out at page 364:

`…the immediate issue in this appeal concerns the right of a female barrister, in computing the profits of her profession, to deduct the cost of upkeep of a wardrobe of clothes of a design and colour suitable to be worn under her gown during court appearances. But during the course of the argument this issue was found to resolve itself into a far more general and fundamental question: whether any person carrying on a trade, profession or vocation on his own account is entitled to a similar deduction if he chooses to set apart clothes, underclothes and footwear for use only at his place of work, and when proceeding to and from his place of work.’

The part of Lord Brightman’s judgment describing the applicable legislation and its interpretation is set out at page 365:

`The effect of [what is now S34(1)(a) ITTOIA 2005] is to exclude, as a deduction, the money spent by Miss Mallalieu unless she can establish that such money was spent exclusively for the purposes of her profession. The words in the paragraph “expended for the purposes of the trade, profession or vocation” mean in my opinion “expended to serve the purposes of the trade, profession or vocation”; or as elaborated by Lord Davey in Strong and Co of Romsey, Ltd v Woodifield [see BIM37300] “for the purpose of enabling a person to carry on and earn profits in the trade etc”. The particular words emphasised do not refer to “the purposes” of the taxpayer as some of the cases appear to suggest; (as an example see the report of this case in [1983] 1 WLR 256 F 2 ). They refer to “the purposes” of the business which is a different concept although the “purposes” (ie the intentions or objects) of the taxpayer are fundamental to the application of the paragraph.

The effect of the word “exclusively” is to preclude a deduction if it appears that the expenditure was not only to serve the purposes of the trade, profession or vocation of the taxpayer but also to serve some other purposes. Such other purposes, if found to exist, will usually be the private purposes of the taxpayer.’

The part of Lord Brightman’s judgment describing the process to follow is set out at pages 365-366:

`To ascertain whether the money was expended to serve the purposes of the taxpayer’s business it is necessary to discover the taxpayer’s “object” in making the expenditure. See Morgan v Tate & Lyle Ltd at pages 37 and 47 [[1954] 35 TC 366, see BIM35570]. As the taxpayer’s “object” in making the expenditure has to be found, it inevitably follows that (save in obvious cases which speak for themselves) the Commissioners need to look into the taxpayer’s mind at the moment when the expenditure is made. After events are irrelevant to the application of [what is now S34(1)(a) ITTOIA 2005] except as a reflection of the taxpayer’s state of mind at the time of the expenditure.

If it appears that the object of the taxpayer at the time of the expenditure was to serve two purposes, the purposes of his business and other purposes, it is immaterial to the application of [what is now S34(1)(a) ITTOIA 2005] that the business purposes are the predominant purposes intended to be served.

The object of the taxpayer in making the expenditure must be distinguished from the effect of the expenditure. An expenditure may be made exclusively to serve the purposes of the business, but it may have a private advantage. The existence of that private advantage does not necessarily preclude the exclusivity of the business purposes. For example a medical consultant has a friend in the South of France who is also his patient. He flies to the South of France for a week, staying in the home of his friend and attending professionally upon him. He seeks to recover the cost of his air fare. The question of fact will be whether the journey was undertaken solely to serve the purposes of the medical practice. This will be judged in the light of the taxpayer’s object in making the journey. The question will be answered by considering whether the stay in the South of France was a reason, however subordinate, for undertaking the journey, or was not a reason but only the effect. If a week’s stay on the Riviera was not an object of the consultant, if the consultant’s only object was to attend upon his patient, his stay on the Riviera was an unavoidable effect of the expenditure on the journey and the expenditure lies outside the prohibition in [what is now S34(1)(a) ITTOIA 2005].’ 

The part of Lord Brightman’s judgment reviewing the Commissioners’ findings and considering the wider implications is set out at page 369:

`…I return to my opening observations that the issue involved in this appeal has inevitably opened up a far wider and more fundamental point, namely the right of any self-employed person to maintain, at the expense of his gross income and therefore partly at the expense of the general body of taxpayers, a wardrobe of every-day clothes which are reserved for work. I find myself at odds with Slade J. when he says (page 922 A), “I accordingly emphasise that this is a decision on the particular facts of the present case”, a remark which, although accurate, implies that there is something exceptional about the case. In the first place, counsel for the taxpayer disclaimed any reliance on the fact that his client disliked dark clothing, never purchased it for private use, and therefore was not in a position to resort to her private wardrobe to answer the requirements of her profession. This disclaimer was rightly made. It would be absurd to suppose that there exists one law for the blonde barrister who lacks a wardrobe of dark clothes, and another law for the brunette barrister whose wardrobe of every-day clothes contains many dresses suitable for court appearances. It therefore inevitably followed, as counsel conceded, that the taxpayer was arguing that if a barrister, male or female, chose to establish a wardrobe of clothes exclusively for working purposes, he or she would be entitled to deduct the cost of its upkeep. The question then arose whether this beneficent state of affairs would apply to other professional persons, such as solicitors, accountants, medical practitioners, trades people and persons in all other walks of self-employed life, and if not why not. The only distinction that could be drawn was that a barrister who wore unacceptable clothes would find himself barred from pleading in court, as well as risking the loss of the goodwill of his clients, while other professional persons might be subject only to the latter sanction. It did not seem logical that the right of deduction should depend on the degree of the sanction which induced the professional person to equip himself with subdued clothing. Furthermore, “necessity” is not part of the formula in [what is now S34(1)(a) ITTOIA 2005], and therefore the existence of a sanction was wholly immaterial. So there was no reason for concluding that the tradesman would be debarred from maintaining his own wardrobe of clothes for working days if the taxpayer’s argument were correct. Finally, there could be no distinction between top clothes and underclothes and other articles of wearing apparel. The position was ultimately reached that there was no distinction to be drawn between the position of male and female barristers, or between the position of barristers and practitioners of every other trade, profession and vocation, or between top clothes, underwear and footwear. So, at the end of the day, if the argument for the taxpayer is right, it will be open to every self-employed person to set against his gross income the cost of the upkeep of a complete wardrobe of clothes, so long as he reserves such clothes strictly for use only at work, or when proceeding to and from his work. Counsel for the taxpayer did not shrink from this conclusion. I mention this wider aspect of the problem only to emphasise once again that there is nothing exceptional about the facts of this case.’

The part of Lord Brightman’s judgment explaining why he could not follow the narrow approach of the lower courts is set out at page 370:

`My Lords, I find myself totally unable to accept this narrow approach. Of course Miss Mallalieu thought only of the requirements of her profession when she first bought (as a capital expense) her wardrobe of subdued clothing and, no doubt, as and when she replaced items or sent them to the launderers or the cleaners she would, if asked, have repeated that she was maintaining her wardrobe because of those requirements. It is the natural way that anyone incurring such expenditure would think and speak. But she needed clothes to travel to work and clothes to wear at work, and I think it is inescapable that one object, though not a conscious motive, was the provision of the clothing that she needed as a human being. I reject the notion that the object of a taxpayer is inevitably limited to the particular conscious motive in mind at the moment of expenditure. Of course the motive of which the taxpayer is conscious is of a vital significance, but it is not inevitably the only object which the Commissioners are entitled to find to exist. In my opinion the Commissioners were not only entitled to reach the conclusion that the taxpayer’s object was both to serve the purposes of her profession and also to serve her personal purposes, but I myself would have found it impossible to reach any other conclusion.’

The part of Lord Brightman’s judgment explaining why the costs of uniforms and protective clothing are not disallowed is set out at pages 370-371:

`It was inevitable in this sort of case that analogies would be canvassed; for example, the self-employed nurse who equips herself with what is conveniently called a nurse’s uniform. Such cases are matters of fact and degree. In the case of the nurse, I am disposed to think, without inviting your Lordships to decide, that the material and design of the uniform may be dictated by the practical requirements of the art of nursing and the maintenance of hygiene. There may be other cases where it is essential that the self-employed person should provide himself with and maintain a particular design of clothing in order to obtain any engagements at all in the business that he conducts. An example is the self-employed waiter, mentioned by Kerr LJ, who needs to wear “tails”. In his case the “tails” are an essential part of the equipment of his trade, and it clearly would be open to the Commissioners to allow the expense of their upkeep on the basis that the money was spent exclusively to serve the purposes of the business. I do not think that the decision which I urge upon your Lordships should raise any problems in the “uniform” type of case that was so much discussed in argument. As I have said, it is a matter of degree.

The case before your Lordships is indistinguishable in principle from Hillyer v Leeke[[1976] 51 TC 90, see BIM37025]. That case arose under [what is now S336 Income Tax (Earnings and Pensions) Act 2003], but the ratio of the first ground of decision is equally applicable to [what is now S34(1)(a) ITTOIA 2005]. 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.’