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Understanding Tax Deductions: Insights from HMRC v Kunjar and the Interpretation of ‘Wholly, Exclusively, and Necessarily’ Expenses

By admin
25 Jul 2023
Accounts & Compliance


In this blog we look at the concept of “Wholly, Exclusively, and Necessarily” expenses, which plays a vital role in determining tax deductions.

Why can’t I claim that? A question we often get asked as we are going through client expenses, from work trips that involve the children, to the Christian Louboutin shoes ‘essential’ for a business meeting! Here is where the “Wholly, Exclusively, and Necessarily” test comes in. You can claim expenses against tax. But HMRC makes it hard work.

Don’t pay for expenses that your employer should be paying for – here’s how and when to claim a tax deduction.

As an employee, you may spend your own money on things that are related to your job. Where this is the case, you may be able to claim tax relief on your expenses.

As individuals and business owners navigate the complexities of the UK tax system, it is essential to be familiar with the test of “Wholly, Exclusively, and Necessarily” when claiming employment expenses. This concept plays a vital role in determining whether certain expenses are eligible for tax relief. If you are self-employed, the rule is different – just “wholly and exclusively” for the purposes of the business.

The Meaning of “Wholly, Exclusively, and Necessarily” for Tax Deductions

According to Section 336 of the Income Tax (Earnings and Pensions) Act 2003 (ITEPA), the general rule for claiming a deduction from earnings is allowed if the employee is obliged to incur and pay the expense as part of their employment, and the amount is incurred wholly, exclusively, and necessarily in the performance of the employment duties.

Wholly: An expense is considered “wholly” incurred if it is entirely and exclusively for the purpose of carrying out the employment duties and has no personal element attached to it. It means that the expense must be incurred solely for the benefit of the employer’s business and not for personal use.

Exclusively: The requirement of exclusivity means that the expense must relate entirely to the duties of the employment and not for any other purpose. If an expense has a dual purpose, where it serves both business and personal objectives, it may not be eligible for tax relief.

Necessarily: The test of necessity implies that the expense must be an essential part of carrying out the employment duties. It must be incurred because of the nature of the employment and not due to personal choice or preference.

A recent tax case, HMRC v Kunjar (2023) UKFTT 538, sheds light on the interpretation and application of these principles.

How the HMRC v Kunjar Case highlights Tax Deductions

In the HMRC v Kunjar case, the claim for deductibility of expenses incurred by a doctor against his employment income at St George’s Hospital in Tooting came under scrutiny. Specifically, part of the rent incurred by Mr Kunjar on a flat close to his work was being claimed for tax relief. The doctor argued that since he was required to stay within 30 minutes travel time of the hospitals in London where he worked but maintained his family home in Southampton, the proportion of rent related to his “on-call” work in the flat was incurred wholly, exclusively, and necessarily in the performance of his duties.

Although the First-tier Tribunal (FTT) had previously allowed the claim, HMRC challenged the decision on three grounds:

Mr Kunjar was not obliged to incur the expenses as a condition of his employment.

The expenditure was not incurred “wholly, exclusively, and necessarily” in the performance of his duties.

The expenses were not incurred “in” the performance of his duties but “for” those duties.

The Upper Tribunal (UT) upheld HMRC’s appeal, providing significant insights into the interpretation of “Wholly, Exclusively, and Necessarily” in the context of claiming expenses.

Implications for Claiming Expenses

The HMRC v Kunjar case case has significant implications for claiming tax deductions and understanding the strict interpretation of “Wholly, Exclusively, and Necessarily” when claiming expenses.

Merely fulfilling a condition imposed by the employer (e.g., residing within a certain distance from the workplace) does not necessarily make the expenses wholly, exclusively, and necessarily incurred for the employment.

Apportionment of expenses with a dual purpose may not be allowed, and expenses should be entirely and exclusively for the benefit of the employer’s business to be eligible for tax relief.

Personal benefits derived from an expense, even if some work is carried out, might not render it tax-deductible if it is primarily incurred for personal reasons.

By now you may be getting depressed. Is nothing allowable? The truth is that for the employee, little is. Professional subscriptions are one example; tools, another. But the self-employed are usually better off, just as the employer is.

As individuals and business owners consider claiming expenses, it is crucial to carefully assess whether the expenses meet the “Wholly, Exclusively, and Necessarily” criteria as defined in the UK tax legislation. Seeking professional tax advice and maintaining meticulous records of expenses can help ensure compliance with the tax laws while optimising legitimate tax relief opportunities.

Understanding “Wholly, Exclusively, and Necessarily” expenses for maximising tax deductions is important when looking at personal and business expenses, we always recommend you seek professional advice for optimising tax relief opportunities.

Do you need help with understanding tax deductions?

Please note that the article is a general overview and does not constitute legal or financial advice. For specific tax-related concerns and advice, readers are encouraged to consult with qualified tax professionals or seek assistance from HM Revenue and Customs (HMRC).

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