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Dhaliwal v HMRC

The wholly and exclusively rule governing the deductibility of expenses has been part of the tax code since 1842 so it is more than a little surprising to find a taxpayer challenging not only its application to specific circumstances but the principle of whether the test is legally valid. Here the taxpayer thought his counsel put forward the argument that the wholly and exclusively rule is contrary to the fundamental freedom principle of European law and that the true test should simply be whether an expense was incurred for the purpose of the trade regardless of whether there was another purpose.

The taxpayer wanted the tribunal to determine this matter as a preliminary point before hearing the substantive arguments on the actual expenditure in question here (which concerns an EBT-like scheme). Perhaps not surprisingly the tribunal did not agree and the taxpayer’s argument will have to go forward as part of the main appeal.

It seems unlikely in the extreme that a court would overturn such a deeply embedded principle