Her trade is a social media influencer. She operates on various online platforms and people subscribe to her content. She argues that the cosmetic surgery is required to succeed in her industry and the back surgery is needed to enable her to sit for video shoots etc., for sustained periods. I’m not certain about the correct treatment and would appreciate your guidance”
A: The relevant legislation is found in section 34 of Income Tax (Trading and Other Income) Act 2005. This section sets out that expenditure cannot be deducted in computing trading profits unless it is incurred wholly and exclusively for the purposes of a trade, profession or vocation. However, most of the relevant information in relation to this question is found in case law and HMRC’s guidance.
General principles
Firstly, we must determine the purposes for which the expenditure is incurred. What is the taxpayer’s motive for the surgeries? If the reasons are only business related (wholly), and the expenditure was incurred solely for those reasons (exclusively), then in principle, the “wholly and exclusively test” is met. This will be the case even where an incidental benefit arises to your client. HMRC comment on this point in their internal guidance at BIM37400.
Conversely, if the expenditure is not incurred ‘wholly’ and ‘exclusively’ for the purposes of your client’s trade, these tests are unlikely to be met, and the costs will not be an allowable expense. This is ‘dual purpose’ expenditure.
HMRC advise (also in BIM37400) that:-
“Dual-purpose expenditure is expenditure that is incurred for more than one reason. If one of the reasons is not for business purposes, the expenditure fails the statutory test and there is no provision that allows a ‘business’ proportion”
Back surgery
In HMRC’s view, medical expenditure that relates to ensuring or restoring good health is not generally allowable because it has an “intrinsic duality of purpose” i.e. there will always be a personal benefit. This view is set out in BIM37940.
Where a specific aspect of a person’s health is involved, HMRC take the view that the expenditure may be incurred wholly and exclusively for business purposes.
In the case of Parsons v HMRC Commissioners [2010] TC 00421 a stunt man’s claims for the costs of a private operation on his knee, for cosmetic dentistry and for chiropractic/massage were accepted by the tribunal as being incurred wholly and exclusively for business purposes. In the case of the knee operation (which he could have been provided by the NHS) the purpose of the expenditure was to return the individual (as the lone sole trader) expeditiously to work.
There have been other cases where such claims have not been successful, including Norman v Golder [1944] 26TC293. Details of both cases, along with links to more detailed guidance are provided in HMRC’s internal manual at BIM50620:-
HMRC summarise their view on ensuring or restoring good health in BIM37940 as follows:-
“There will almost always be a personal purpose in wishing to enjoy better health. Expenditure incurred for that purpose will therefore be of a dual nature and is not allowable. Different considerations may apply where expenditure is on purely cosmetic matters and where health considerations are not involved”.
Consequently, this poses a challenge in relation to the expenditure incurred for your client’s chronic back problem, which is likely to also provide better health in her daily life.
Cosmetic surgery
With reference to your client’s view that her cosmetic surgery is required to succeed in her industry, HMRC note in their guidance at BIM50160 that:-
Where a person in the public eye claims a deduction for the cost of cosmetic surgery to correct some perceived inadequacy in their appearance, you need to examine whether one of the purposes in incurring those costs was to gratify their private wish to improve/change their appearance. If it was, no deduction will be due. Only in exceptional circumstances will an operation to change personal appearance by reversing or masking the advancing of the years not have a private purpose. You should invite the tribunal to infer the existence of a private motive unless there is compelling evidence to the contrary.
When considering duality of purpose, the case of G Daniels v HMRC [2018] UKFTT 462 TC06640 is important, although, as a First Tier Tribunal case, not binding. A dancer successfully defended her claim in relation to certain expenses incurred including clothing, garments, dry cleaning, shoes, cosmetics, perfume, and beauty treatments. All items, which, on the surface could be argued to have an intrinsic duality of purpose.
Should HMRC challenge the expenses claim for cosmetic surgery, the onus will be on your client to provide evidence that no private motive exists. The reasons for determining that such expenditure is allowable should be carefully documented.
Summary
This is not a simple question. You would need firstly to consider whether the expense will be incurred wholly and exclusively for the purposes of the trade. If not, the expense is not allowable. You will also need to consider whether the expense has an intrinsic duality of purpose, i.e., is this a general restoration of health or is there a specific aspect of the individual’s health involved that could be argued as being solely for the purposes of the trade, per the Parsons case. Finally, is it cosmetic, in which case, there may be a stronger (but by no means definitive) argument.
