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Allowability of expenses re. voluntary work that is conducted alongside identical fee-earning activity.

An individual has trained in a discipline and undertaken voluntary work in that field and is now qualified and able to take on a first fee-paying client. The business will be slow to grow so voluntary work (in two widely-separated geographic areas) will continue in order to ensure that the minimum number of hours are worked to satisfy Continuing Professional Development (CPD) requirements. The self-employment depends on membership of the professional body so meeting their CPD requirements is essential.

My concern is that the significant expenses (travel from normal place of work, subsistence, overnight accommodation, etc.) associated with the voluntary work are not directly related to any specific income. In the absence of sufficient chargeable hours, the voluntary work is required to allow this self-employment to continue so does that make the associated net costs allowable per the "wholly and exclusively" criterion?

The charities for which the voluntary work is performed either do not reimburse expenses at all or (in the case of one in the geographic area near the taxpayer's usual place of business) pays mileage at less than AMAP rates. Some permit their qualified volunteers to take on clients as private clients when time-limited charity-support is ended. Losses are anticipated for the first couple of years as a result of these heavy expenses (if allowable) and ongoing training costs but subsequent commercial profit is realistically foreseen. Are the net costs allowable?

Supplementary question: 
Professional insurance was (per rules of professional body) required to cover pre-qualification voluntary work but can that only be charged pro-rata the self-employed period or could the full cost be claimed as pre-startup expenditure along with the printing, advertising and membership fees of professional body, etc.? Not much cash involved but I'd like to be clear on the principle.

 

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By chatman
31st Aug 2010 17:39

Expenses do not have to be directly related to specific items of

I am not an expert, but I would have thought that, as the expenses are necessary so that the business can continue, and so that income can be generated, they would be allowable.

Expenses that are incurred in order to put the trader in a position to start trading (eg pre-qualification insurance) are, I believe, not allowable, but pre-trading expenditure such as advertising and professional subs would be.

However, I am sure someone more knowledgeable than me will give you a more authoritative answer.

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08th Sep 2010 10:41

Just going for it.

Thanks for your suggestion. I guess that the only option is  to proceed on the assumption that the "wholly and exclusively" requirement is satisfied on the grounds that, even though it creates a loss, the business could not continue without the activities to which the expenditure relates.

Time-based pre-trading expenditure will be charged pro rata but with full charge of expenditure where the benefit accrues in the trading period (e.g. print, staty & adv).

 

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