SE31630 - The Schedule E expenses rule: key words and phrases

The Schedule E deduction rule is very restrictive. All of the tests imposed by Section 198(1) ICTA 1988 must be passed before a deduction is obtained. The tests are stringent and exacting, see SE31636. It is important that you get all of the facts before you make a decision, see SE31635.

A deduction should only be given to the extent that an expense has actually been incurred. This is illustrated by example SE31631, example SE31632 and example SE31633.

The tests that apply to travelling expenses are slightly different to the tests that apply to other expenses, see SE31810.

The tests that apply to expenses other than travelling are

• the expense must be one that each and every holder of that office or employment would have to incur, see SE31640
• the expense must be necessarily incurred, see SE31645
• the expense must be incurred in the performance of the duties of the office or employment, see SE31650
• the expense must be incurred and defrayed out of the emoluments of that office or employment, see SE31655
• the expense must be wholly and exclusively so incurred, see SE31660.

There is a useful summary of these tests in paragraph 8 of the judgment of Lightman J. in Ansell v Brown (73TC338).