BIM37928 - Wholly & exclusively: expenditure having an intrinsic duality of purpose: living accommodation
Living 'over the shop'
The cost of domestic living accommodation is not allowable
notwithstanding that the expenditure allows the taxpayer to do more
work.
In the case of Mason v Tyson [1980] 53TC333, a chartered
surveyor, carried on practice in Hackney but lived in Kensington.
The small flat over his business premises became vacant. Mason
caused it to be repaired, redecorated and furnished and
subsequently used it from time to time to sleep in when he had to
stay late at work. Mason never worked in the flat.
The General Commissioners held that the Inspector had rightly
refused a deduction for expenditure:
- on repairs and redecorations, since it was not ‘wholly and exclusively laid out for the purpose of the ... profession'and was expenditure for ‘domestic and private purposes distinct from the purposes of the … profession‘ (what is now ICTA88/S74 (a) and (b)); and
- on furniture because it was not ‘expenditure on the machinery or plant for the purposes of the [profession]’ and so did not qualify for capital allowances.
In the High Court Mason sought to add to and to and
‘correct’ the facts (as he saw them) which had been
found by the Commissioners.
The High Court, dismissed Mason’s appeal, holding:
i. that the Commissioners’ decision in relation to both
heads of expenditure was correct;
ii. that the Court was bound to accept the facts found by
the Commissioners and there was no jurisdiction to add to or to
alter those facts.
Walton J accepted that the expenditure was modest and had been
incurred so that Mason could do more work than otherwise. But the
contents of the flat were not in any way used for the purposes of
the surveyor’s trade. What they were used for was to provide
a very sensible environment for the surveyor with advantages to the
practice; allowing him to ‘live over the shop’. But the
judge did not think that anything which was laid out merely for the
purpose of preserving the person who is carrying on the trade or
business in health, strength and refreshment, to enable him so to
carry it on, can properly be said to be ‘
wholly and exclusively laid out or expended
for the purposes of the ... profession’. It must in
part, of necessity, be laid out and expended on ordinary human
physical needs. The expenditure was therefore not allowable.
For those who do not have ready access to tax case volumes,
the part of Walton J’s judgement where he explains why the
expenditure was not allowable is set out below, 53TC339E to
340I:
I fully accept that the expenditure was a
modest expenditure and I fully accept that the whole of the
expenditure was incurred for the purpose of furnishing the flat so
that Mr. Mason could do more work than he otherwise could have done
and could arrive at his morning’s work having had a good and
proper night’s sleep. But, having said all that, it appears
to me really beyond argument that the contents of the flat were not
in any way used for the purposes of the trade. What they were used
for was to provide a very sensible environment for Mr. Mason with
advantages to the practice in the way of extra work which he was
enabled to do because of, putting it colloquially, the advantages
he had in ‘living above the shop’ whenever he wanted to
take that course. But it does not seem to me that the mere fact
that that is the result of the expenditure entitles him to say that
the contents of the flat were used in the carrying on of the
business.
There is a recent decision of my brother, Fox
J., in Hampton v Fortes Autogrill Ltd. 53TC691]
and I think I need read only from the
headnote, which is perfectly accurate:
‘In determining whether something was ‘plant’, the functional test must be applied - i.e. did the item in question perform a function in the actual carrying on of the trade?’
Therefore, the question here is, for example:
Did the bed in the flat perform a function in the actual carrying
on of the trade? If one poses the question in that form - and that
is the right form in which to pose it – it appears to me
beyond all argument that it did not. What it did was to provide
refreshment and rest for Mr. Mason, which enabled Mr. Mason thereby
to carry on the business of Bunch & Duke, his business of
chartered surveyors. But that the bed itself, or indeed any of the
contents of the flat, was actually used as part of the
profit-making apparatus of the practice of Bunch & Duke appears
to me to be really wholly unarguable. Therefore, not only am I
wholly unable, even had I wished, to depart from the conclusion of
the General Commissioners on this point; it appears to me that if
they had found in Mr. Mason’s favour I would have been
obliged, on their primary findings of fact, to have come to a
different conclusion. There really is, and can be, no argument
about the nature of the flat. Similarly, when one comes to the
question of the decoration of the flat, I think this is governed
once again by the acceptance by the General Commissioners of the
submissions of the Inspector of Taxes, to which I have already
referred. What may not be deducted from the profits or gains is
‘any disbursements or expenses, not being money wholly and
exclusively laid out or expended for the purposes of’, in
this case, the profession. It seems to me quite clear that the
money spent on redecorating the flat was not laid out for the
purposes of the profession. It was laid out in order to have a
suitable place where Mr. Mason could spend his evenings on those
occasions when he wished to ‘live above the
shop’.
Of course, in one sense - and a very important
sense indeed - without that Mr. Mason could not have done so much
work, or could not have done it so brilliantly, and therefore the
practice would have suffered. But I do not think that anything
which is laid out merely for the purpose of preserving the person
who is carrying on the trade or business in health, strength and
refreshment, to enable him so to carry it on, can properly be said
to be ‘wholly and exclusively laid out or expended for the
purposes of the … profession’. It must in part, of
necessity, be laid out and expended on ordinary human physical
needs. The Scots have a useful expression, ‘The body maun be
keep it up’. Of course the body must be kept up and in order
to keep up the body one must eat and, within modest limits, at any
rate, drink - and hopefully also be merry. But the mere fact that
that is what one has to do, and that if one did not do that one
would rapidly fall into a state of decline and therefore be totally
unable to carry on one’s profession, does not mean that when
one has a jolly good meal finished off with a bottle of claret the
money so expended is being laid out wholly and exclusively for the
purpose of one’s profession; it is not. It may in a sense be
partially so laid out, but not wholly or exclusively. In the
present case it seems to me that the matter is clearly analogous to
that.
Mr. Mason had to have somewhere to sleep. He
could very well have slept at his Kensington home. That, of course,
would have entailed that he would not have had so much time to give
to the practice. But when he was sleeping in his flat above the
practice he was having a good night’s sleep, which was
essential to him whether, the following day, he was going to work
or play, or do a bit of the one and a bit of the other. That being
so, it seems to me that it is quite impossible to say that any
money expended on redecorating or running the flat was
‘wholly and exclusively laid out or expended for the purposes
of the … profession’. Those are the words to be found
in [what is now ICTA88/S74 (1)(a)]
and there are many cases in the books which
lay it down that those words mean exactly what they say. Part of
the expenditure must have been, inevitably, merely providing Mr.
Mason with the needed night’s rest.
