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Towards a reasonable business expenses rule

Category Technical Articles
AuthorTechnical Department
Article by Oyebode Oyetunde, Solicitor. This article appeared in the August 2006 issue of Tax Adviser. KEY POINTS

  • The all or nothing, 'wholly and exclusively' rule applied to determine the tax deductibility of expenses for tax (Schedule D Case I and II, Schedule E and VAT) purposes may lead to inequities and inefficiences as illustrated by UK case law.
  • While economic theories (notably, optimal tax theory) provide considerable insights into alternative formulations of the deductibility rule, some of these are fraught with difficulties that hinder practical implementation.
  • A 'but for' reasonable business expenses rule, which used practical tools such as the dissection and apportionment of work-related expenses from personal expenditure, could provide a more economically efficient alternative to the all or nothing, 'wholly and exclusively' rule.
  • The benefits of the 'but for' reasonable business expenses rule would be further enhanced if the rule was applied on a sensible, sectoral basis, as illustrated by the Australian tax system.

Technical Department
020 7235 9381

August 2006 by Oyebode Oyetunde


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