A colleague told you that a recent ruling by a Tribunal means that you might be entitled to claim a tax deduction for your gym membership. This contradicts HMRC’s long-standing guidance. Who is right?
Wholly and exclusively tax deductions
You probably know that tax rules don’t allow a deduction for expenses which aren’t “wholly and exclusively” for the purpose of your business. The effect of the rule is that unless every penny of an expense is incurred for a business purpose the wholly and exclusively test is failed and none of it is tax deductible.
Duality of purpose
Naturally, some expenses have more than one purpose by their very nature. The clearest example is food. In the case of Caillebotte v Quinn 1975 Q, a carpenter, claimed the cost of his lunches while at work. The court said the purpose of eating meals was primarily to meet Q’s needs as a human being, not just to keep him fit for work. The wholly and exclusively test was not met. Trap. If an expense doesn’t pass the wholly and exclusively test none of it is deductible, even if there’s a significant business motive. Tip. If the business part of an expense can be isolated and passes the wholly and exclusively test, a tax deduction is allowed for that part, e.g. the cost of business calls on your personal phone bill.
Apportioning an expense
For the tip above to apply you must be able to show HMRC that a quantifiable part of the expenses meets the wholly and exclusively condition. This is not easy; a good example of the practical difficultly is illustrated by the court’s ruling in Prince v Mapp 1969 . P was a professional guitarist who claimed the cost of surgery on his hand. Without the operation he could not have earned a living from playing. The court ruled the expense was not deductible because P played guitar for personal enjoyment as well as professionally and the cost could not be divided.
The odds were against the taxpayer in Osborne v HMRC 2020. O was a “saturation diver”, which is physically dangerous and demanding. O’s special training reflected this. He trained not just to be physically fit but to minimise skeletal damage and prolong his career. As you would expect HMRC wheeled out its tried and tested “duality of purpose” argument, i.e. O’s wish to be fit has a personal motive as well as a business one.
The First-tier Tribunal approached the issue from a different angle. Based on past judgments it said “an incidental or unavoidable private advantage” doesn’t necessarily rule out an exclusive business purpose. In reality O’s only purpose for the special training was to enable him to do his job: the training was “dictated by his occupation as a matter of physical necessity” . The two to three-hour daily fitness regime far exceeded any personal physical need for fitness. The personal advantage O gained from such a tough regime was therefore incidental. Tip. If expenditure is of a recognisably special character that’s directly related to the requirements of your job, it is probably tax deductible. You must be able to show a clear business need and that any personal gain is an unavoidable side effect.
In theory a deduction is possible but the conditions are tough. You must be able to show that your job requires a special training regime, not just general fitness and pass the wholly and exclusively test. Any personal advantage you gain must be merely an incidental and unavoidable side effect.