Share this content
0
10
3187

Simple duality question

Simple duality question

Happy Sunday Night Everyone

So, I've read the relevant sections of the BIM in regards to duality along with reading other publications.

On the one hand I am told that where an expenditure has a dual purpose of a business and personal use the whole expense is disallowed.

Then I read that where you can apportion the percentage between business and private the business part is allowable.

Hmm

1. Is it the case that the apportionment is only applicable to a limited amount of scenarios or is it simply the case that where duality exists that's the end of the matter in all scenarios?

2. Assuming apportionment is allowable, how exactly do you justify the percentage beyond sticking your finger in your mouth and then holding it to the wind? Obviously some thought has to go into it but from what I have read it's not exactly an exact science.

Many thanks in advanced for any response. I just love learning more about tax and this forum is very helpful.

Replies

Please login or register to join the discussion.

By SteveOH
05th Mar 2012 00:13

Dual purpose expenditure is not allowable

The danger is in confusing the two terms. If an item of expenditure has duality of purpose, it is disallowed; full stop.

Where apportionment comes into the scheme of things is in situations where expenditure is at one point in time incurred for business purposes and at other points in time is private. But that particular item of expenditure cannot be readily split between the two; so has to be apportioned.

You fill up your car with £100 worth of petrol and then carry out business and private journeys. The petrol that you are using for your business is allowable and for private disallowable. There is no duality of purpose but you need to apportion that £100 on a reasonable basis.

You work from a study at home. The electricity that you use in your study while you are working is 100% business use. There is no duality of purpose for that electricity but you need to apportion the entire bill.

Thanks (1)
avatar
05th Mar 2012 08:28

Ah.....

Thanks for the response Steve!

I do get what you're saying - It just seems that duality can be applicable to anything - particularly if you take the term "purpose" out of the equation.

I buy a printer for my study at home - the purpose (so say I) is to use it on my business but I estimate that I use it 30% of the time for private things.

Now, here, I profess I had no duality of purpose but there has been a duality of use. Can I apportion?

Sorry to be pedantic - it just seems to be a grey area. Maybe it is a grey area full stop and you simply have to argue your point?

But then it comes back down to how can you make a reliable apportionment? Reasonable estimation based on any available evidence?

Thanks (0)
avatar
05th Mar 2012 10:46

The actual legislation is not much more help either:

Section 34 of ITTOIA 2005:

Expenses not wholly and exclusively for trade and unconnected losses

(1)In calculating the profits of a trade, no deduction is allowed for—

     (a)expenses not incurred wholly and exclusively for the purposes of the trade, or

     (b)losses not connected with or arising out of the trade.

(2)If an expense is incurred for more than one purpose, this section does not prohibit a deduction for any identifiable part or identifiable proportion of the expense which is incurred wholly and exclusively for the purposes of the trade.  

 

-----> Again, are you allowed to apportion on a percentage basis an item of expenditure that you believe has a genuine business purpose but has incidental private usage also? As a last resort is simply a qualified "guess" allowed?

Is "purpose" in this context subjective and open to interpretation? I.e. the less a tax inspector can know the better?

Thanks (0)
05th Mar 2012 11:13

Duality v apportionment

Your printer's a bad example.  It's capital and capital allowances can (and should) always be apportioned between business and other use.

Duality means that the same expense has both a business and a personal purpose.  Feeding the trader, clothing the trader, mending the trader when he's been broken, etc.

If you have an expense where a part of the expense can be identified as being wholly attributable to business, ie the running costs of a car (every mile travelled will eventually lead to cost, so the cost of business miles can be claimed).

I don't understand your difficulty.

Thanks (1)
avatar
05th Mar 2012 11:25

Thanks George.

I think I am being a bit too liberal with the word "personal" - I have took it to mean private (e.g. the private use of a printer, but yes, apologies, I was ignoring the CA's for the sake of argument - although with some printers I would argue they only last enough to be classed as expensed equipment).

From what you have said "personal" should refer to things required by necessity to live or to enjoyment rather then the incidental private enjoyment.

Where there is a personal "to live / enjoy" and a business purpose then the whole cost is disallowed.

Where there is a private and a business purpose you can apportion.

Is this essentially correct?

Apologies but this is not really made clear.

Also, I would still argue that the actual legislation in its strict sense deviates from what you have said and from HMRC guidelines - however, from reading case law on the matter I can see that doesn't really matter.

Thanks (0)
avatar
05th Mar 2012 11:52

Ignore me

Also, I would still argue that the actual legislation in its strict sense deviates from what you have said and from HMRC guidelines - however, from reading case law on the matter I can see that doesn't really matter.

Ignore me. The penny has dropped. The legislation does not deviate at all. "wholly and exclusively" - which personal items (food, ordinary clothing etc - as per Mallalieu ) are not AT ALL - see BIM37660. Some items of expenditure have a private and a business element in which they ARE wholly and exclusively for business.

I still think the term "duality" is a bit confusing and is referenced more with private use of an expense:

http://moneytalks.gponline.com/2011/09/13/deciphering-the-concept-of-duality-for-tax-purposes/

Apportion on a reasonable basis - I suppose this is the part which is open to interpretation but as long as you can make it as accurate as possible I don't see an inspector being too awkward? Although according to the above article you can't even do that??? Sorry, but you get one set of people saying one thing that is different to what someone else says that is similar but not the same as HMRC's guidelines that.....

Thanks (0)
avatar
05th Mar 2012 12:54

I can see the confusion too

For me it's when people say this:

SteveOH PM | Mon, 05/03/2012 - 00:13 | Permalink

The danger is in confusing the two terms. If an item of expenditure has duality of purpose, it is disallowed; full stop.

When the legislation says this:

(2)If an expense is incurred for more than one purpose, this section does not prohibit a deduction for any identifiable part or identifiable proportion of the expense which is incurred wholly and exclusively for the purposes of the trade.  

That I find confusing.

Basically, if the expense has a business and private element you can claim for the business element. The problem arises when your client thinks there is a business element (subsitence etc) when you know there isn't.

And yes, I suppose apportioning the costs involves a bit of accounting magic fed by as much information as you can get.

Thanks (0)
avatar
05th Mar 2012 13:10

Duality of Purpose

I don't think "simple" and "duality" should be used in the same sentence and sympathise with the OP. There's tax law (wholly and exclusively) and case law (duality of purpose). HMRC have relied upon Callebotte v Quinn (1975) as a fall back argument whenever certain overhead claims are made. It's a pity that a test case hasn't been brought in a higher Court as I (and I think HMRC) believe that decision was weak.

In practice it's unlikely that "duality" would be argued unless it relates to subsistence (the Callebotte case) or possibly clothing (covered by the Mallieu v Drummond case). HMRC do allow subsistence claims for self-employed taxpayers in certain circumstances but the relevant BIM pages aren't exactly precise. The existence of this concession does suggest that HMRC are more relaxed on the strict interpretation of the original duality of purpose case.

 

 

 

 

 

Thanks (1)
05th Mar 2012 13:15

The art of Zen

Let me give you an exercise in mindfulness.  You've been working very hard this morning.  Why not treat yourself to your favourite sandwich?

As you eat the sandwich, you need to stay mindful, that the lower slice of the bread and the filling attached to it (as far as the middle of the sandwich) is there for your sustenance.  The upper slice and the filling attached to it (as far as the middle) is merely repleneshing the energy you've expended in your wotk.

The upper part of the sandwich is tax deductible.  The lower part of the sandwich isn't.

Can we apportion the cost of the sandwich?

Not in the real world!  You can't eat half a meal for business purposes.  You can't wear half a suit of clothes for business purposes.  You can't have half a hip replacement for business purposes.

You can get in your car and drive it 20,000 miles this year, 10,000 of which were for business purposes.

When there is "any identifiable part or identifiable proportion of the expense" that can be attributed to a business purpose.  Then there's not duality of purposes, there's one expense with two purposes.

Your sandwich is one expense for one purpose.  That purposes is both a business purposes and a personal purpose, so there is duality of purposes.

Incidentally, you can claim subsistence expenses in certain circumstances.

Thanks (1)
avatar
05th Mar 2012 13:26

Haha - I'm going to shut up now

Thomas - thanks, you're completely right! I am just trying to understand the topic inside out and my thought process is always one that's pedantic.

George - thank you for your patience. I do gather though that there are many grey areas in this topic though but as you have alluded to - in 99% of cases you can use your common sense

Thanks (0)