As explained in
BIM37928, the cost of domestic
accommodation is not allowable. This remains the case
notwithstanding that the taxpayer’s only conscious motive in
occupying the property is to carry on their trade, profession or
vocation.
In the case of McLaren v Mumford [1996] 69TC173, McLaren was
a, tenant of a public house. McLaren’s only conscious motive
in entering into the tenancy agreement was to provide himself with
a trade to earn his living. The premises included living
accommodation, and the tenancy agreement required him to live at
the premises at all times, which he did. McLaren and his partner
lived in the premises, and her sons made occasional visits, but he
also owned and maintained a house elsewhere.
McLaren sought a deduction from his profits as a publican for
the full amount he incurred on rent, rates, lighting, heating and
insurance. The General Commissioners held that, whilst
McLaren’s only conscious motive at the outset had been to
provide himself with a trade, the purpose of the expenditure was
also to provide him with personal residential accommodation. They
disallowed one-sixth of the expenditure to cover the private and
personal use of the premises. McLaren appealed.
The High Court dismissed McLaren’s appeal. The Court
held that it was irrelevant that McLaren’s only conscious
motive in signing the tenancy agreement was to provide himself with
a trade to earn his living. The expenditure was incurred in
consequence of the signing of the tenancy agreement. The private
element of the expenditure was not incurred for the purpose of
earning the receipts of McLaren’s trade, but served the
non-trade purpose of satisfying his ordinary human needs. On the
facts found, the Commissioners were entitled to have come to the
conclusion that they reached.
Rimer J referred to Mason v Tyson [1980] 53TC333 (see
BIM37928) and Mallalieu v Drummond [1983] 57TC330 (see
BIM37910) and explained that it is
irrelevant that the taxpayer’s only conscious motive in
signing the tenancy agreement was to provide himself with a trade
to earn his living or that it was incurred in consequence of the
signing of the tenancy agreement. The private element of the
expenditure was not incurred for the purpose of earning the
receipts of the taxpayer’s business, but served the
non-business purpose of satisfying the taxpayer’s ordinary
human needs. It was thereby disqualified from being deducted, and
that was so regardless of the taxpayer’s motive when he
signed the agreement or of the fact that the tenancy agreement
obliged him to occupy the premises.
For those who do not have ready access to tax case volumes,
the part of Rimer J’s judgement where he explains why the
expenditure was not allowable is set out below, 69TC184I to 185C
and 186E to 186F:
For the Crown, Mr. Brennan submitted that the
expenditure in this case served a dual purpose, both private and
business, and that although only s 74(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. He referred to Wildbore v.
Luker [33TC46, at page 51 see
BIM37600],
for a recognition by Roxburgh J. of the
Revenue’s practice in this respect. The Crown does not
contend in this case, any more than it did in that one, that if
some part of the expenditure must be disallowed as being incurred
for private purposes the whole must be disallowed.
As to whether the expenditure in this case was
in fact for a dual purpose, Mr. Brennan submitted that it is
irrelevant that the taxpayer’s only conscious motive in
signing the tenancy agreement was to provide himself with a trade
to earn his living or that it was incurred in consequence of the
signing of the tenancy agreement. The private element of his
expenditure was not incurred for the purpose of earning the
receipts of the taxpayer’s business, but served the
non-business purpose of satisfying his ordinary human needs. It was
thereby disqualified from being deducted, and that was so
regardless of the taxpayer’s motive when he signed the
agreement or of the fact that the tenancy agreement obliged him to
occupy the premises…
…I accept Mr. Brennan’s
submissions and I agree that, on the facts which they found, the
Commissioners were so entitled. I dismiss the taxpayer’s
appeal.
I add that in his reply Mr. Grierson submitted
that the Revenue’s practice of allowing the apportionment of
dual purpose expenditure of the type incurred in this case was
wrong in law. It was unclear to me how that submission was thought
to assist the taxpayer. On the facts found by the Commissioners it
would, if correct, appear to invite the conclusion that none of his
expenditure, including the part incurred for business purposes, was
deductible in the computation of his profits for tax purposes.
However, as the point is not raised by the Case Stated, I do not
propose to express any view on it.
