The central test of deductibility when calculating profits is whether or not the expense has been “wholly and exclusively laid out or expended for the purposes of the trade or profession”
Despite the importance of this test, it has not often come before the Irish courts and therefore there is little guidance from Irish case law as to how this phrase should be interpreted however the following principles have been established from previous case law and are still applicable today.Principles
- There is no requirement that the expense is necessarily incurred, for the purpose of the trade or otherwise. The necessity is irrelevant once the expense is incurred in furtherance of the trade
- One must look at the purpose of the expense (whether stated or subconscious) and not just its effects.
- As a general rule, travel between home and work, even if some work is carried on at home, always carries the purpose of getting home – it facilitates living away from work. The duality of purpose renders the expense non-deductible.
- So-called ‘itinerant’ traders are an exception to the general rule that travel between home and work is incurred by the decision to live away from work.
- Home, for such traders, is the only place new customers can contact them, where they store their tools etc. Therefore, they go home to look for new work. In these instances, getting home is an effect and not a purpose of the journey.
- It is not necessary to determine where a trade is carried on, or to establish a ‘base of operations’. Travel between a home office and a main ‘base of operation’ will not necessarily be deductible. One must look solely to the statutory test, the main focus of which is the purpose for which the expenditure was incurred.
- There is a distinction between “travelling in the course of a business and travelling to get to the place where the business is carried on”
In many cases, for convenience, sole traders will include all of their travel expenses in their business accounts and then ‘add-back’ a portion to remove the cost of personal usage from the computation of assessable profits. When determining the appropriate percentage add-back for an individual taxpayer regard should be had to the principles set out above.
It is important to note that Revenue will not accept deductions for travel or subsistence expenses of sole traders based on the civil service rates.Employees
Employers often reimburse employees for expenses incurred wholly, exclusively and necessarily in the performance of the duties of their employment in accordance with the approved civil service rates. The reimbursement of employees in line with the civil services rates (in accordance with IT51 or IT54) will be accepted by Revenue as an expense incurred wholly & exclusively for the purposes of the employer’s trade.