Discuss the phrase “wholly and exclusively for the purpose of the business”
Discuss the phrase “wholly and exclusively for the purpose of the business” – what kind of expenditure does it exclude? What do you understand by the terms “remoteness” and “duality of purpose”?
The phrase” wholly and exclusively for the purpose of business” would means the taxpayer or company sole purpose for incurring the business expenditure is only for their trade or business. Any purposes that not related to trade or that if the business expenditure would consist of two or more business purposes would not qualify as being wholly and exclusively for the purpose of trade.
In the case of Cooke v Quick Shoe Repair Service, [1949] 30TC460, the taxpayer had purchased a shoe repair business from a vendor but the vendor was unable to settle some trade liabilities. The taxpayer would pay certain sums to its suppliers out of goodwill to ensure business continuity and settle the vendor’s debts. The taxpayer would later proceed to claim for a trade deduction for these expenses for that period of trading.
The High Courts and the Commissioners would allowed the deduction to go through as they viewed the expenditure to be wholly and exclusively for the purpose of the business. The judge, Croom-Johnson would also allow the deduction to go through as he viewed the money being spent was to preserve an asset which in this case was the goodwill of supplier to ensure business continuity. I would have to agree with the judge in that the expenditure to be revenue in nature as the vendor would lose his business creditability if he does not have supplies in time to deal with more customers which in turn would hurt his trade’s profitability.
Business expenditures are operating costs that are incurred by businesses to carry out their trade in generating profit. They can be categorized into the following: Capital expenses, personal expenses & lastly business expenses.
Capital expenses are defined as the cost spent to acquire or upgrade long term assets such as buildings, land or
The phrase” wholly and exclusively for the purpose of business” would means the taxpayer or company sole purpose for incurring the business expenditure is only for their trade or business. Any purposes that not related to trade or that if the business expenditure would consist of two or more business purposes would not qualify as being wholly and exclusively for the purpose of trade.
In the case of Cooke v Quick Shoe Repair Service, [1949] 30TC460, the taxpayer had purchased a shoe repair business from a vendor but the vendor was unable to settle some trade liabilities. The taxpayer would pay certain sums to its suppliers out of goodwill to ensure business continuity and settle the vendor’s debts. The taxpayer would later proceed to claim for a trade deduction for these expenses for that period of trading.
The High Courts and the Commissioners would allowed the deduction to go through as they viewed the expenditure to be wholly and exclusively for the purpose of the business. The judge, Croom-Johnson would also allow the deduction to go through as he viewed the money being spent was to preserve an asset which in this case was the goodwill of supplier to ensure business continuity. I would have to agree with the judge in that the expenditure to be revenue in nature as the vendor would lose his business creditability if he does not have supplies in time to deal with more customers which in turn would hurt his trade’s profitability.
Business expenditures are operating costs that are incurred by businesses to carry out their trade in generating profit. They can be categorized into the following: Capital expenses, personal expenses & lastly business expenses.
Capital expenses are defined as the cost spent to acquire or upgrade long term assets such as buildings, land or