2 March 2020
You may be used to arguing your way, but when it comes to HMRC, it is their own letter of the law that counts. That’s where, and why, it can get confusing. For expenditure to be deducted from any income, it must be of a revenue nature and incurred ‘wholly and exclusively for the purposes of the profession’.
Wholly and exclusively for the purposes of the profession
Applying the test of ‘wholly and exclusively for the profession’ is not always simple. For example, a new suit may seem like it would apply but chances are that a suit will have a dual purpose – it is worn outside of chambers, and therefore not exclusive to your professional purposes. Your wigs and robe, however, are unlikely to be seen at the nearest Michelin starred establishment, so therefore can be claimed.
Of a revenue nature
The revenue basis to the claim can also cause some confusion. ‘Of a revenue nature’ can generally be applied to expenses that are incurred repeatedly. If an expense is a one-off payment within that tax year, it is more likely to be a capital expenditure. For example, if you rent your equipment and pay a monthly lease agreement, that would be viewed as a revenue expense. If you purchased the equipment outright, then it would need to be treated as capital. This could apply to computers, sets of law reports, etc.
To ease the confusion, here is a (not exhaustive) list of the tax-deductible expenses you can claim:
- Residential study – this is like a use of home calculation
- Chambers’ commission and rent charges
- Devilling/cross payments
- Consultancy/research costs/secretarial assistance
- Printing, postage and stationery
- Computer running expenses
- Travel costs
- Motor running costs: if the car is within the business, this should be adjusted for any private usage
- Mileage: if there is no car within the business and you are therefore using your own private vehicle
- Accountancy fees
- Professional subscriptions
- Data protection costs
- Bank charges – only related to business accounts/accounts that are used for your sole trade
- Professional indemnity insurance
- Cost of new wigs, robes, bands and collars
- Dry cleaning for wigs, robes, bands and collars only
And here’s a reminder of what you cannot, but which we often see barristers try to, claim:
- New suits, watches, other clothing
- Dry cleaning for other clothing
- Entertaining costs, such as dinners, etc.
- Income protection insurance
- Health insurance
As I mentioned, these lists are by no means exhaustive, but will hopefully provide you with some guidance. If you would like to discuss your taxes and future returns further, please contact me or your local UHY tax specialist.
Alternatively, fill out our contact form here.