The recent case of Azam v HMRC TC 895 revisited the old question of business expenses incurred wholly and exclusively for the purposes of the business and the traditional difficulty of duality of purpose.

Mrs Azam ran a beauty salon. She had difficulty dealing with issues where she needed to confront her staff. She undertook counselling sessions to assist her in this matter. Mrs Azam was a devotee of the Church of Scientology and the teachings of L Ron Hubbard. Her counsellor provided counselling on these principles.

Mrs Azam said that when an issue arose at work she would seek counselling about it, and after the counselling she would return to work to deal with the problem. She found this very helpful with the business.

You get the picture. One can easily imagine that it would be a hard sell getting HMRC to agree to a deduction for the cost of this counselling. However, it is not a bad argument. The reason given by the Tribunal for disallowing the expenses is that Mrs Azam had in mind (subconsciously) the personal benefit she derived from the counselling. This was a duality of purpose, and the expenses were not deductible.

(Let’s be kind and say it was obviously a slip of the pen for the Tribunal to say that Mrs Azam “had in mind” a subconscious benefit. If she had it in mind, it would not have been subconscious. Conversely, if it was subconscious, she would not have had it in mind.)

Be that as it may, there is some powerful authority for the proposition that the conscious state of mind of the taxpayer at the time of the expenditure is not conclusive. If there was another subconscious non-professional purpose, that is sufficient to disallow the expenditure. (The classic case here is Mallalieu v Drummond and the sombre clothing purchased by a barrister for wearing exclusively in court.)

However, this subconscious business can be taken too far – because it can always be said that a subconscious non-professional purpose exists for any expenditure. I may feel better in green rather than blue overalls, or my reputation at the golf club may be enhanced if I buy this laptop rather than that. You can ascribe a subconscious non-professional purpose to anything if you want to. This makes the possibility of a tax deduction for any expenditure completely arbitrary, and there must be some limits to the attribution of a subconscious purpose. I wonder what they are.

The House of Lords in Mallalieu v Drummond acknowledged that the expenditure may have a personal advantage – such as the doctor who visits a patient in the South of France. If the personal advantage was not a purpose for the expenditure but merely an effect, then the expenditure is fully allowable – as it was in the recent case of David Parsons TC 421 where a stunt man successfully claimed medical expenses for injury so that he could return to work more quickly. Clearly Mr Parsons would have had “in mind” (or subconsciously) the existence of this private benefit, but that benefit was an effect and not a purpose.