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

…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 effect of [what is now ICTA88/S74 (1)(a)] 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 256f (Page 352 ante). They refer to ‘the purposes’ of the business which is a different concept although the ‘purposes’ (i.e. 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.

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 (35TC367 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 ICTA88/S74 (1)(a)] 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 ICTA88/S74 (1)(a)] 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 ICTA88/S74 (1)(a)].

…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 922A], ‘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 ICTA88/S74 (1)(a)], 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.

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.

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 L.J., 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 51TC90, see BIM37025]. 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.