In William McAdam v HMRC [2017] TC05563 the First Tier tribunal denied a tax deduction for wages paid to a plumbers wife of £90 per week; the amounts were excessive for the work done and should be reduced.

Expenses are only tax deductible in respect of a trading business:

  • To the extent that they are incurred wholly and exclusively for the purposes of the trade.
  • Where they are not a deduction will be denied.
  • This applies whether the trade is operated directly by a sole trader, via a partnership or through a limited company.

Mr McAdam was a self-employed plumbing and heating engineer.

  • He paid his wife wages of £90 per week
  • This was to look after the accounting and administration of the business including answering the phone, processing orders and checking prices for parts.
  • He told the court that his wife did most of the banking and taking of telephone enquiries, which contradicted HMRC’s notes of meetings with him (which he had not challenged).
  • He produced job sheets to which his wife had pinned receipts but did not attempt to produce any further evidence of his wife’s participation in the business.
  • HMRC enquired into his self-assessment returns for 2009/2010 to 2013/2014 alleging:
    • The wife’s wages were not wholly and exclusively for the purposes of the business and were excessive.
    • Turnover was understated.

and issued assessments accordingly for 2009/10 to 2012/13 including penalties.

The tribunal agreed with HMRC that the wages were excessive:

  • They did not believe that they had been furnished with any credible evidence to support the level of activity described by Mr McAdam.
  • An appropriate wage would be the £1,344 per annum, calculated as 3.5  hours a week for 48 weeks, at an hourly rate of £8, which had been allowed by HMRC. 
  • They also upheld HMRC’s adjustment to turnover on the basis of presumed continuity quoting Jonas v Bamford, (that an under-declaration made in one year will have been repeated in other years until there is some change in the situation.)
  • The penalties for prompted disclosure were also upheld.


The facts of the case and lack of evidence produced by Mr McAdam made the tribunals decision to disallow part of the wife’s wages a straight forward one and the case is by no means a precedent for the wholly and exclusively principle. However, it is a stark reminder that wages paid to spouses and partners must be supportable and reasonable if a tax deduction is to be secured.


William McAdam v HMRC [2017]  TC05563

Wholly and exclusively..update

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