Duality of purpose: Social media blurs the lines

With the rise of the use of social media platforms such as YouTube, TikTok, Instagram and Only Fans (to name but a few), content providers are now blurring the lines between their public (business) and private lives, consequently throwing into question some of our basic understanding of the rules behind the duality of purpose test. In this article, we’ll look at the implications, using clothing as an example.

The rules

Many content creators generate income from ‘hobby-like’ activities. Provided the total value of income and gifts received are small they should be covered by the £1,000 trading allowance, meaning there are no tax consequences.

However, for those whose online activity has become more than just a sideline, and generates significant amounts of income, understanding the rules around duality of purpose is important if they are to keep their allowable expenses up and their tax bills down.

A good example of the sort of problem that can arise is clothing. Considering whether clothing costs are allowable for tax purposes has always caused taxpayers problems, but this has become more acute as content creators find their physical appearance and the clothes they wear regularly judged and critiqued by their online viewers and followers.

A long-standing tax rule is that for business expenses to be allowable they must meet the ‘wholly and exclusively for the purposes of the trade’ test. In most cases this isn’t a problem, and the purpose and nature of the expense is usually clear.

However, there are some costs where this isn’t as straightforward and these can be said to have a ‘duality of purpose’, fulfilling both a business and private function, thus failing the ‘wholly and exclusively’ test and rendering them disallowable for tax purposes, creating potentially larger tax bills.

Case law

Understanding the tax implications isn’t helped by the fact that the leading case on clothing expenses remains the 40-year-old House of Lords decision in Mallalieu v Drummond.

The Mallalieu case centered on whether clothing purchased by a barrister, Ms Mallalieu, was an allowable expense for the purposes of her trade. Whilst attending court, Ms Mallalieu was required to wear somber clothing such as white blouses/shirts, black suits or skirts and black court shoes, which she argued she would not have chosen to wear outside of the courtroom. Her claim was eventually rejected on the basis that her ‘wardrobe of everyday clothes’ was required for the sake of both ‘warmth and decency’.

This emphasis on ‘everyday clothes’, ‘warmth’ and ‘decency’ has proven especially important in the outcomes of subsequent cases.

Fast forwarding 35 years on from the Mallalieu case, we arrive at the First-Tier Tribunal case of G Daniels v HMRC. Ms Daniels’ profession was quite different from that of Ms Mallalieu’s – she was a self-employed exotic dancer at a London nightclub.

Her argument, however, was essentially the same, that the costs of the clothing she was required to wear whilst performing on stage should be treated as allowable expenses against her income because outside the nightclub, she would not have chosen to wear them.

The judge concluded that the clothes Ms Daniels wore on stage (which were handmade and bespoke) were not ‘everyday clothes’ and that as they were often ‘see-through’ and ‘skimpy’ in nature they could hardly be expected to provide any ‘warmth’ or ‘decency’. Ms Daniels won on this aspect of her case and HMRC chose not to appeal.

The future

Where does this leave clothes purchased by social media content providers? Many will continue to be disallowed on the ‘everyday clothes’ and ‘warmth and decency’ principles, but what about adult content providers?

These people might take comfort from the Daniels case, but although this was only decided five years ago, it referred to facts dating back over 12 years, and the way in which people access and provide entertainment has moved on since then.

For instance, is a bedroom now akin to Ms Daniels’ ‘stage’? Is clothing from boutique stores such as Ann Summers and Victoria’s Secret sufficiently ‘bespoke’, in the same way as Ms Daniels’ home-made clothes were? Given adult content providers may never leave their home for their work, where does this leave the concepts of ‘warmth and decency’?

These are a few of the questions that content providers will need to consider when completing their tax returns and it may be that the answers will ultimately again need to be decided by the courts.