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There will normally be little difficulty in justifying the deduction of salary or other remuneration paid to employees, whether in cash or in kind, as employees generally carry out activities wholly and exclusively for the purposes of the trade. However, the wages must actually be paid to the employee; notional payments are not deductible¹.

Where the employee is concerned with work on a capital project, or is only involved in activities relating to a companies capital assets, it may be arguable that part of his salary should be regarded as a capital expense and therefore not deductible. However, in Scott Bader Co Ltd², the suggestion that a deduction for the salary costs involved on the secondment of an employee should be denied as a capital item was firmly rejected. If the salary cost is capitalised as part of the cost of the project no deduction will effectively be sought although capital allowances may be due in respect of it. Where a deduction is claimed HMRC do not normally seek to deny a deduction