Is a dog your best friend or a tax deductible expense?
Helen Thornley untangles the tax leads for sheep dogs, guard dogs, office dogs, therapy dogs and assistance dogs.
An anonymous questioner on Any Answers asked whether it was permissible for a self-employed individual to claim tax relief on the costs of a therapy dog. This got me thinking about the circumstances in which the self-employed could claim relief for the costs of purchasing and caring for a dog.
Paws for thought
The starting point for deductibility for tax relief is always whether the expense has been incurred wholly and exclusively for the purposes of the business. This is ultimately a question of fact, and the purpose of incurring the expenditure is critical.
If there is some other, non-trade, motive - a dual purpose - then the expenditure has not been incurred wholly and exclusively for the business. However, some tax relief may still be available if a part or portion of the expense can be identified as relating to the trade.
The most obvious situation where the purchase and ongoing care costs of a dog are allowable is the traditional working dog such as a farm dog, or guard dog.
HMRC accepts that guard dogs can be treated as ‘plant’ for capital allowance purposes, which gives relief for the full cost of purchase. The same principle also applies to farm dogs such as sheep dogs.
Where the working dog is an asset used in the business, the ongoing costs of feed and vets bills are allowable and any VAT costs can be recovered if the business is VAT registered.
While some farm dogs are treated as one of the family and are permitted in the farmhouse, it’s usually clear that such treatment is incidental to the active role the dog performs on the farm. If the purpose of acquiring the dog was to perform a valuable role in the business, it follows that all associated doggy-costs should be allowable as deductions.
Where the dog is on guard duty, the costs of keeping a big fierce animal to defend the business premises should be tax deductible, as the purpose is clear. But claiming that your Shih Tzu is acting as a guard dog is unlikely to meet with HMRC’s approval.
Problems may arise when an owner seeks full or partial relief for an animal which is somewhere between a Shih Tzuh and the Hound of the Baskervilles, that provides guarding services as well as being a family pet. In these circumstances, there is clearly a dual purpose element, which will generally preclude relief.
While apportionment of costs is possible in some circumstances (think of a car doing business and private miles), I am struggling to see how apportionment would work for the costs of keeping a dog. Apportioning feed costs on the basis of ‘x hours of walkies’ and ‘y hours of growling at strangers’ doesn’t sit well with me. In my view, it is an all or nothing approach, with the fact the animal is also a pet resulting in all expenses being prohibited as dual purpose.
Definitely don’t let your client tell HMRC that the animals are guard dogs designed to protect the individual’s privacy, and also describe them in media interviews as family pets.
Another claim that looks like a shaggy dog story to me is the office companion dog.
If it belongs to the boss and goes home with them every night, even if clients enjoy petting it or it gets a lot of likes on the firm’s social media, it would take quite a lot of work to convince me that the underlying purpose was not to acquire a pet. Its presence at work is just a way of saving on doggy day-care.
There will be cases where a dog has genuinely been acquired with an intention to benefit the trade. The original Any Answers post asked about a dog acquired for use in therapy. Many types of animal – not just dogs - are taken into care homes, hospitals and schools where they are hugely valued and appreciated by those who interact with them.
Where the dog handler is self-employed, the argument for tax-deductible dog costs can be supported by the level of care and preparation required for such visits. Dogs must be assessed for suitability and, for those going into medical settings, higher standards of grooming are needed, a range of vaccines are mandatory and diets involving raw meat are prohibited. A private therapy setting it may not require such stringent precautions.
Other indications of the dog being acquired the purpose of the business to enhance the therapy sessions include:
- a specific breed has been chosen to be most suitable to the role
- it has had some form of training
- the availability of the dog is advertised to clients
- it takes part in the sessions
- it gets rest breaks
- some patients request the animal
The fact that the dog is taken home outside of working hours should be incidental to its purpose as a therapy tool.
Where a guide dog helps an employee to fulfil their duties, specific provision is made for tax relief for the costs of keeping and replacing the dog (EIM32430). While hearing and other assistance dogs are not mentioned in the HMRC manuals, similar tax relief should apply if such a highly trained animal enables the employee to perform their role.
There is no specific indication that the costs of any assistance dog would qualify for tax relief for the self-employed, as there is likely to be a significant dual purpose.
However, it would seem strange for HMRC to be accommodating for the needs of, say, blind employees, who are not required to apportion the cost of the dog between business or private use but deny tax relief for a blind self-employed individual in similar circumstances.
A positive outcome of this article is that the ATT will pick-up whether there needs to be new HMRC guidance for self-employed owners of guide dogs or hearing dogs, and we are keen to hear of your experience in this area.
For everyone else, it’s a case of keeping your clients on a short leash, and out of the HMRC dog house.
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Helen Thornley has a focus on personal and capital taxes. Initially training as an accountant before moving to tax, she worked in practice until her appointment as a technical officer in 2017. She also has an interest in the history of tax.