We should pay attention to the fact that in accordance with the statutory definition, revenue expenditure is expenditure incurred to generate revenue or to maintain or secure a source of revenue, except for the expenditure listed in the Act.

Both Income Tax Acts include a catalogue of expenditure items that will not be considered revenue expenditure; in the PIT Act the list appears in Article 23, and in the CIT Act in Article 16 para. 1. As we know, only entrepreneurs have the right to apply expenditure at its actual amount. In the case of revenue from other sources, lump-sum expenditure is typically applicable, in the amount specified by the legislator.

Therefore, a negative catalogue of expenditure items refers in principle only to entrepreneurs, and is almost identical in both Acts.

The catalogue is extensive and comprises expenses of a different character. Today, we will have a look at such “prohibited” expenses that the entrepreneurs must deal with most frequently, and which therefore cause many problems and much controversy.

In an attempt to systematize this catalogue, we can say that the expenses that are not tax expenditure take the form of:

1) expenses on acquisition of tangible, intangible and financial components of non-current assets, at the moment when they are incurred;
2) expenses related to the discharge by a taxable person of their liabilities towards creditors, and losses related to the taxable person's debtors defaulting on their obligations;
3) expenses being financial sanctions;
4) expenses related to the settlement of liabilities towards the State Treasury;
5) other expenses of a varied nature.

Expenses on acquisition of tangible, intangible and financial components of non-current assets, at the moment when they are incurred

In one of the chapters we discuss a rather unusual expense, which is depreciation/amortisation.

Depreciation or amortisation is a monetary expression of the progressive wear and tear of assets that are used in a business, rented and leased.

If an entrepreneur buys an asset to be used for business purposes, and the asset will be used over longer term (above one year), they cannot recognise relevant expenses as revenue expenditure on a one-off basis. On the contrary, the expense will be debited to tax expenditure throughout the asset's useful life, by means of depreciation/amortisation allowances.

Example:

An entrepreneur buys a car for business use for 50,000 PLN. He cannot recognise this expense under expenditure on a one-basis, but is obliged to use depreciation allowances.

In accordance with legal regulations, the annual depreciation rate for cars is 20%, which means that the expense on the car's purchase will be spread over a period of 5 years.

So any expenses on acquisition of tangible, intangible and financial components of non-current assets do not become an expenditure item when incurred but become one gradually, by means of depreciation/amortisation allowances.

Legal regulations also provide for situations where depreciation/amortisation allowances are not considered revenue expenditure. Therefore, the following will not be considered revenue expenditure:

1) Depreciation allowances on a passenger car, in that part of the car value that exceeds the equivalent of 20,000 EUR.

Tax authorities are suspicious of entrepreneurs who use passenger cars for business purposes. In a sense, tax regulations assume that an entrepreneur uses such car not only for business but also for private purposes, so we have here a number of limitations in recognition of expenses as revenue expenditure, or in VAT deductions.

One can also come to the conclusion that primary “suspects” are entrepreneurs buying cars worth more than 20,000 EUR. Taxable persons that use such cars as a fixed asset may not recognise under revenue expenditure those depreciation allowances that refer to the “surplus” over the value of 20,000 EUR.

This means that before they start to recognise depreciation allowances on a passenger car, a taxable person should first verify whether the car value does not exceed the equivalent of 20,000 EUR. If it does, it is necessary to calculate what portion of a depreciation allowance will not be tax expenditure.

Example:

At the date when the car is accepted for use, the equivalent of 20,000 EUR is 80,000 PLN, and the car's initial recognition amounts to 200,000 PLN.

If we apply the depreciation rate of 20%, the annual depreciation would amount to 40,000 PLN. However, the tax expenditure for the year will only amount to 16,000 PLN (20% × 80,000 PLN). Thus, 24,000 PLN will be the amount excluded from revenue expenditure.

2) Depreciation/amortisation allowances on fixed and intangible assets, on that part of their value which corresponds to the expenses incurred on their acquisition or independent development that has been deducted from the taxable base in income tax, or has been refunded to a taxable person in any form whatsoever.

So revenue expenditure does not include depreciation/amortisation allowances on fixed and intangible assets on that part of their value that has been refunded to a taxable person in any form whatsoever or financed with the revenue which was subject to tax exemption.

Example:

A taxable person buys a fixed asset for 100,000 PLN net. The depreciation rate is 20%. After a year, the taxable person receives a subsidy from the European Union to finance 40% of the fixed asset purchase (i.e. 40,000 PLN). How should the situation be reflected in the taxable person's expenditure settlements?

Since the taxable person received a partial refund for the asset's value (i.e. 40,000 PLN), depreciation allowances on that part cannot be recognised as revenue expenditure. If we assume that in the first year the taxable person recognised allowances on the entire value of the asset, then in the first year the allowances in question reached 20,000 PLN (100,000 PLN x 20%).

In connection with the subsidy received, 40% of that amount will not be considered expenditure. Therefore, the taxable person should adjust their expenditure by 8000 PLN (20,000 PLN x 40%), and in subsequent years recognise depreciation allowances of 60,000 PLN, i.e. 12,000/year.

3) Depreciation/amortisation allowances on the initial value of fixed and intangible assets:

a) that were acquired free of charge, with the exception of those acquired through inheritance or donation, if:

- such acquisition does not constitute revenue derived from a free-of-charge receipt of property or rights; or
- corresponding income is exempt from income tax, or
- the acquisition constitutes income on which tax collection was abandoned pursuant to separate regulations;

b) if, before 1 January 1995 they had been acquired but not recognised under fixed or intangible assets;

c) transferred for a free-of-charge use – for the months in which such assets remained under free use.

To put the above provision in simple terms, we can say that no depreciation allowances must be recognised on fixed assets that have been received by a taxable person for free, and such acquisition did not give rise to tax revenue, or such revenue was tax-free.

Example:

It was mentioned recently that an unemployed person can receive from a Starost (via a job centre) a one-off allowance to start a business activity in a contractual amount not higher than 6 times the average salary.

These funds are tax exempt.

So if an entrepreneur uses these funds to buy a fixed asset for business purposes, they will not be able to depreciate it for tax purposes.

Expenses related to the discharge by a taxable person of their liabilities towards creditors, and losses related to the taxable person's debtors defaulting on their obligations

This group of expenses includes various expenditures related to the servicing of borrowings and claims. And so, the following will not be considered tax expenditure:

1) Expenses on:

a) repayment of borrowings (loans), excluding capitalised interest on such borrowings (loans), on the proviso that revenue expenditure consists of expenses on the repayment of the borrowing (loan) where the borrowing (loan) was indexed with an FX rate, if:

- the borrower returns, as part of the borrowing (loan) repayment, the principal amount higher than the amount of the borrowing (loan) received – at the difference between the amount of the returned principal and the amount of the borrowing (loan) received;

- the lender receives cash representing a repayment of the principal at an amount lower than the amount of the borrowing (loan) granted – at the difference between the amount of the borrowing (loan) granted and the amount of the returned principal;

b) repayment of other liabilities, including in respect of guarantees and sureties granted.

On the whole, borrowings are tax neutral. In other words, borrowings obtained are not revenue (they must be repaid after all) and, on the other hand, the repayment of a borrowing is not expenditure.

However, the tax liability arises in connection with interest: interest received is the lender's revenue whereas interest paid is the borrower's expenditure.

The legislator has also provided for a situation where the repayment of the principal part of the borrowing results in itself in a gain or loss (because the borrowing was indexed with an FX rate), representing accordingly a revenue or expenditure item.

Example:

Elisabeth lends Joan 1000 EUR, but they agree that the borrowing will be paid and returned in its current equivalent in PLN, calculated according to the average exchange rate of the National Bank of Poland (NBP).

The borrowing is granted on 5 January 2012. At that date, the EUR exchange rate amounts to 4.5135, so Elisabeth lends 4513 PLN. Joan returns the borrowing on 4 January 2013. At that date, the exchange rate amounts to 4.1248, so the amount returned amounts to 4125 PLN.

As a result of indexation, Elisabeth records a “loss” on the borrowing equal to 388 PLN. In accordance with legal regulations, she will be able to include the amount as expenditure.

In the opposite situation, that is, if on the borrowing repayment date, the EUR exchange rate is lower than on the day it was granted, it would be the borrower (Joan) who must recognise expenditure.

2) Borrowings granted, including borrowings lost.

As we have just mentioned, borrowings are tax neutral: the granting and the repayment of a borrowing are neither revenue nor expenditure. Hence, borrowings lost will not be expenditure either.

3) Interest accrued but not paid or remitted concerning liabilities, including interest on borrowings (loans).

Only interest paid is considered expenditure. Thus, interest that has not been paid by a taxable person will not be considered expenditure. Not only is the interest remitted not an expenditure item but it will most frequently be considered revenue.

4) Borrowings written off, provided that this is unrelated to bankruptcy proceedings or a possible composition with creditors within the meaning of bankruptcy and restructuring law.

5) Claims remitted, except for those which have previously been accrued as revenue receivable.

Speaking of revenue, we have mentioned that in the case of a business activity, the accrual principle applies, i.e. tax revenue is revenue receivable, even if it has not been obtained yet. It can happen that a taxable person does not receive such revenue from a debtor, and therefore decides to remit it. For the remittance to be effective, the debtor must agree to be released from debt (which may be not so obvious concerning tax regulations).

Remittance of a claim that has been posted as revenue will constitute an item of tax expenditure.

Example:

ABA co. sells goods to VETO co. Unfortunately, for reasons related to customer solvency problems and the unfavourable prospect of collecting the receivable, ABA decides to remit the overdue amount (the debtor agrees to be released from debt).

As a result, ABA has the right to recognise the remitted claim as revenue expenditure.

6) Claims written off as time-barred.

There is no single common limitation period for all claims. A general rule is that if a specific provision does not provide otherwise then the period of limitation is 10 years, while for claims concerning periodical performances and claims related to the conduct of business the period is 3 years. The limitation period depends on the type of claim.

In any case, if a claim becomes time-barred, the debtor can legally refuse to repay the debt. What is more, the creditor having an uncollected claim will not be able to recognise it under tax expenditure.

7) Claims written-off as uncollectible, except for those which have previously been accrued as revenue receivable and whose non-collectability has been disclosed prima facie.

The claims discussed here are claims whose non-collectability has been
documented with:

- a non-collectability resolution, acknowledged by the creditor as corresponding to the facts, issued by a competent authority responsible for enforcement proceedings; or

- a court decision:

to dismiss a petition for bankruptcy involving the liquidation of assets, if the insolvent debtor's assets are insufficient to cover the costs of the proceedings;
or
to discontinue the bankruptcy proceedings involving the liquidation of assets when the circumstance referred to in the preceding item occurs; or
to complete the bankruptcy proceedings involving the liquidation of assets; or a protocol drawn up by a taxable person, stating that the expected costs of the proceedings and enforcement associated with the assertion of a claim would be equal to or higher than the amount claimed.

Example:

Mr. Smith operates a business and has a claim of 500 PLN against Fraudstery Ltd. Despite repeated reminders, the debtor does not repay their liability.

How can Mr. Smith recognise the claim concerned under revenue expenditure?

To enforce such a claim through the court and enforcement proceedings would probably be unprofitable for Mr. Smith, as costs of such proceedings could be higher than the claim amount.

If this is the case, then following the preparation of a protocol from which it will be apparent that the costs of the proceedings and enforcement are higher than the arrears, Mr. Smith will be able to recognise the claim under revenue expenditure.

We should remember, however, that should a debtor return the debt once the claim has been recognised under revenue expenditure, then the claim should be re-stated as revenue.

Expenses being financial sanctions

Running a business is subject to numerous laws and regulations to which entrepreneurs are obliged to adhere. If they breach such legal provisions, they often become exposed to sanctions of various nature. These can be legal sanctions or sanctions imposed under other regulations, such as contracts with contractors.

In tax regulations, we have a principle that all penalties and other sanctions that are imposed on the entrepreneur are not revenue expenditure.

If the expenses incurred in connection with entrepreneur's negligence were to be revenue expenditure, then: first, it could be considered that the state budget partially reimburses the entrepreneur for such expenses (by partially resigning from the tax due), and secondly, it would put defaulting entrepreneurs in a privileged position compared to entrepreneurs that diligently perform their obligations. Thus, sanctions and penalties imposed on the entrepreneur are not considered revenue expenditure.

Among these expenses, we find the following:

1) Enforcement expenditure related to defaults.
2) Fines and pecuniary penalties awarded in criminal, criminal fiscal and administrative proceedings and in cases related to petty offences, as well as interest on such fines and penalties.
3) Penalties, fees and damages, and interest on such liabilities in respect of:

a) non-compliance with environmental regulations;
b) failure to implement any orders of competent supervision and inspection authorities regarding negligence in the field of occupational health and safety;
4) Default interest on overdue payments of budgetary dues and other charges, to which the provisions of the Tax Code of 29 August 1997 apply;
5) Contractual indemnities and damages relative to defects in goods delivered or work and services performed, and delay in delivery of goods free of defects, or delay in removal of defects in goods or work and services performed;
6) The amount of additional annual fees for non-development or non-improvement of land within a specified time-limit, pursuant to the provisions on real property management;
7) Sanction fees which, according to separate regulations, are to be paid to the state budget or local government budgets;
8) One-time compensations for accidents at work and occupational diseases in the amount specified by a competent minister, and an additional insurance contribution, if deterioration of working conditions is ascertained;
9) Additional product fee referred to in Article 17 para. 2 of the Act of 11 May 2001 on the Obligations of Entrepreneurs in the field of Management of Certain Waste and the Product Fee and Deposit Fee, on the proviso that revenue expenditure is the product fee referred to in Article 12 para. 2 of the Act.

Expenses related to the settlement of tax liabilities

A general rule is that taxes paid may not be revenue expenditure. However, there are some exceptions to that rule, when a given tax under certain conditions may actually be considered revenue expenditure.

The following taxes are not considered tax expenditure:

- income tax;
- inheritance and donations tax;
- losses incurred as a result of shrinkage of excise goods that are not subject to excise tax exemption, and excise duty on such shrinkage.

Exceptions concerning tax on goods and services

A general rule is that VAT is not revenue expenditure.

This means that expenses are debited to costs in the net amount: this is because VAT is settled on the basis of VAT regulations. There are, however, some exceptions here.

Revenue expenditure may include the input tax, i.e. tax that we pay as part of the price of goods and services purchased. A taxable person that is not subject to VAT regulations (because a subjective exemption applies to them due to, for example, the turnover achieved, or an objective exemption is applicable (a given business activity is not subject to VAT)) may recognise their gross expenses (i.e. VAT-inclusive amount) under revenue expenditure.

Input tax may also be revenue expenditure in that part for which, in accordance with the provisions on the tax on goods and services, a taxable person is not entitled to a reduction or a refund of the difference in tax on goods and services (except where the input VAT increases the value of a fixed or intangible asset – here the input tax becomes an expenditure item by means of depreciation/amortisation allowances).

Example:

VAT payers that use passenger cars for their business are not entitled to deduct VAT included in the price of fuel.

Therefore, the input VAT that the taxable person cannot deduct under VAT regulations, may be recognised under revenue expenditure provided, of course, that the expense is connected to revenue.

Under certain conditions, the output tax, i.e. VAT that is added by a VAT payer to their own invoices, may be a tax expenditure item too.

Firstly, the input tax may become tax expenditure in the case of service imports and intra-Community acquisition of goods.

When a VAT payer buys a product or service from a contractor from the European Union, they have the obligation to settle VAT. The seller does not disclose VAT in their invoice but a Polish buyer adds the tax and pays it to a tax office. In most cases such an operation is tax-neutral, because the output tax becomes at the same time the input tax. In other words, we disclose the tax simultaneously as the tax to pay and the tax for the refund. However, it will not always be the case. Sometimes a taxable person is not entitled to deduct VAT – for example, in situations where the acquired good and service are used to provide tax-free services or sell tax-free goods. Then the output tax which is not the input tax will be revenue expenditure. On the other hand, tax expenditure will not include the output tax in excess of the amount of tax on purchase of such goods and services, which could be the input tax within the meaning of the provisions governing tax on goods and services.

Secondly, the input tax may be an expenditure item if a taxable person transfers or consumes goods or provides services for entertainment and advertising purposes, with such tax calculated in accordance with separate regulations.

Expenditure may also include the input tax on goods supplied free of charge, calculated in accordance with separate regulations, where the sole condition for the supply is the previous acquisition by a receiving party of goods or services from the supplying party in a specific quantity or of a specific value.

Tax expenditure will also include the amount of tax on goods and service not included in the initial value of fixed and intangible assets that are subject to depreciation/amortisation in accordance with Article 22a-22o, or concerning other property or rights other than fixed or intangible assets that are subject to such depreciation/amortisation – in the part in which the adjustment has been made resulting in a decrease of the tax deducted in accordance with Article 91 of the VAT Act.

Example:

A taxable person buys for business purposes a passenger car with type approval as a goods vehicle (known colloquially in Polish as “a car with a grille partition”) and deducts 100% VAT. As a result, they adopt the net amount as the initial value for the fixed asset's depreciation purposes.

After some time, the taxable person realises that they have made a mistake, because they had no right to deduct 100% VAT, but only 60% (as is the case with “ordinary” passenger cars). Consequently, they correct the VAT settlements and pay the tax of 40%. At the same time, in accordance with the provision quoted above, the initial recognition of the fixed asset is not adjusted here.

Other expenses that are not revenue expenditure

In addition to the above expenses, a “negative catalogue of expenditure” comprises several items, which for taxable persons have been a nuisance for years. The last group of expenditure items which are not treated as revenue expenditure consists of miscellaneous expenses.

Hence, the following will not be considered revenue expenditure:

1) Entertainment expenditure, in particular on catering services and purchase of food and beverages, including alcoholic beverages.

This is one of the more dubious constraints applicable to expenditure. It is because the legislator has assumed that the entertainment expenses of a taxable person cannot be treated as revenue expenditure. But the problem is that... we do not know exactly what “entertainment” is. There is no statutory definition of the term, and a dictionary entry is all the more confusing because it is an ambiguous concept.

In recent years, tax authorities have assumed the following for the purposes of interpretation of the limitation concerned:

“(…) entertainment concerns representing a taxable person (company) entailing grandeur and sophistication, in order make the best possible impression. So the “entertainment” concept includes such activities of a taxable person which aim to create (reinforce) an appropriate image of the company. The appropriate image is such “depiction of the entrepreneur” shaped by means of entertainment spending which translates into purchases of its goods (services). A conscious development of the company's appropriate image is therefore meant to create such perception of the entrepreneur which will arouse positive associations among third parties”.

In fact, this definition is far from perfect. Disputes usually occur in a situation where a tax authority classifies as entertainment expenses (with entertainment understood as entailing grandeur and sophistication) such expenses that are standard for taxable persons operating in a given industry.

Example:

A company leases an aircraft to be used for business travel by the CEO and other persons. The tax authorities decide that it is an entertainment expenditure and as such may not be a revenue expenditure.

A Voivodeship Administrative Court disagrees with that position and states as follows: “In the opinion of the Court, recognition of the entire expenditure related to the lease and operation of the aircraft under entertainment expenses is legally unfounded, as it is only based on the conviction that air travel is “a luxurious and sophisticated service that may add to the company prestige”.
It can be inferred from the Applicant's explanations that the plane was leased for business travel of the CEO and other employees of the company. Expenses related to business travel are the enterprise's operating expenditure and it is irrelevant to the assessment of the nature of such expenditure concerning what means of transport is used. Whether a company uses a worn-out car or a modern aircraft for its own transportation needs cannot be a matter for expenditure classification” (judgment of the Voivodeship Administrative Court in Warsaw of 14 April 2004, ref.: III SA 2893/2002).

Among entertainment-related disputes, the most widespread are those related to meals (catering services).

Sometimes, tax authorities consider that legal regulations prohibit recognition under revenue expenditure of all meal expenses, including in particular the amounts spent on alcoholic beverages. The legal provision, however, clearly indicates such meal expenses which are considered entertainment expenses.

A prominent issue in such disputes is the question of whether an expense associated with inviting a contractor to a restaurant for dinner (for instance to have business talks in a relaxing atmosphere) can be considered a tax expenditure item or not. In spite of the fact that the expense is or may be related to revenue, tax authorities argue that we deal with entertainment expenses here.

Unfortunately, court judgments on this matter are ambiguous.

2) Unpaid contributions to the Social Insurance Institution (ZUS).

Surely, this exclusion is logical and undisputed. Revenue expenditure may include social insurance contributions but only those that have been paid (it is not enough for the contribution to be due).

3) Membership fees for organisations to which a taxable person is not obliged to belong, with the exception of:

a) payments made by taxable persons operating their business in the field of tourism, leisure, sports and recreation for the Polish Tourist Organisation (POT);
b) membership fees for organisations associating entrepreneurs and employers, which operate under separate laws – up to a total amount not exceeding in a tax year the amount corresponding to 0.15% of salaries paid in the previous tax year, which are the basis for assessment of social security contributions; if an entrepreneur did not pay salaries, the amount of membership fees that may be recognised under revenue expenditure in a tax year may not exceed the equivalent of 114 PLN.

Revenue expenditure includes membership fees for organisations to which a taxable person is obliged to belong (e.g. because of their trade or profession). In contrast, membership fees for organisations other than specifically listed in the legislation as exceptions are not considered tax expenditure.

4) Value of a taxable person's own work, as well as work of their spouse and minor children, and in the case of business in the form of a civil partnership or a commercial partnership – also including work of partners' spouses and minor children.

Pursuant to personal income tax regulations, taxable persons are partners in a partnership and not partnerships themselves (the Ministry of Finance plans to extend corporate income tax to limited partnerships on shares – the announced change will be effective starting from 1 January 2014). As a result, the value of work (regardless of the form of service) provided by a taxable person, their spouse and minor children is not a revenue expenditure item for any of taxable persons.

It should be noted, however, that this exclusion does not extend to the value of work of the remaining partners. This means that the remuneration paid to one partner in the company under a contract of employment is not a revenue expenditure item only for the taxable person concerned. Consequently, nothing stands in the way of recognising such remuneration among revenue expenditure of the remaining partners – in proportion to their interest in the company profit (shareholding).

What is also important is the fact that work performed cannot be associated with representation of the partnership or management of its affairs, or stem from the obligations set out in the partnership foundation deed (cf. resolution of the Supreme Court of 14 January 1993, ref.: II UZP 21/92, OSNC 1993/5, item 69).

This rule does not apply in the case of partners' spouses and minor children – the value of their work cannot be included in revenue expenditure of all partners in the partnership.

Example:

Simon and Gordon are partners in a general partnership, and each of them holds a 50% share in profit.

Each of the partners is employed in the company, and they both receive the same remuneration of 10,000 PLN.

In accordance with legal regulations, Simon's remuneration cannot be his revenue expenditure but there are no obstacles to include Simon's remuneration in Gordon's revenue expenditure, and vice versa. As a result, the revenue of each partner will be reduced by the other partner's remuneration.

5) Expenses related to the use of a passenger car that is not entered in the fixed asset register in the part that exceeds the amount being the product of: the number of kilometres actually driven and the rate per kilometre driven.

A taxable person using a passenger car for business purposes where the car is not a fixed asset and is not used under lease, is required to keep the vehicle kilometre logbook. Keeping the logbook is a basic prerequisite if a taxable person wants to recognise car-related expenses as revenue expenditure.

Cars that are most frequently used for business purposes are the entrepreneurs' own cars, own cars of employees used for business travel, and cars used under rental or lending agreements, etc. Recognition of expenses related to the use of such cars under revenue expenditure is dependent on keeping the vehicle kilometre logbook (except for the situation where the employee accounts for the car use expenses in the lump-sum scheme).

In accordance with Article 23 para. 5 of the PIT Act, if no vehicle kilometre logbook is kept, a taxable person's expenses on the use of cars for their own purposes are not revenue expenditure.

The obligation to establish the logbook stems from the fact that a taxable person may not recognise under revenue expenditure all expenses related to the car which is not their own or leased asset, but only such portion of these expenses that is connected to the person's business activity. The amount of expenses which may be considered expenditure is limited to the product of: kilometres driven for business purposes and the rate per kilometre driven that is specified in the legal regulations.

A vehicle kilometre logbook is thus kept to establish the limit of expenses that may be recognised under revenue expenditure. In addition to a vehicle kilometre logbook, a taxable person should also keep a list of car-related expenses (fuel purchases, repairs, parts, fees).

6) Expenses incurred for the account of employees who use their own cars for the enterprise's purposes:

a) in order to travel on business (long-distance travel) – at the amount exceeding the amount determined by applying the rates per kilometre driven;
b) local travel – at the amount exceeding the amount of a monthly lump sum of money, or exceeding the rates per kilometre driven, as specified in separate regulations issued by a competent minister.

An employer is often obliged to reimburse the employee for expenses incurred in connection with the use of the employee's own car for business purposes. Recognition of the employer's expenses under expenditure faces the limitations referred to above.

An employee who uses their own car (or other car that is not owned by the employer) is required to keep a vehicle kilometre logbook, and only the expenses disclosed in the logbook may be tax expenditure.

Expenditure in excess of what is disclosed in a vehicle kilometre logbook will not be considered tax expenditure.

Summary

A general rule is that an expense may be considered revenue expenditure if it is related to revenue and is not excluded from revenue expenditure. The catalogue of exclusions is quite extensive though.

What is more, in some cases legal regulations are ambiguous, and as such may give rise to disputes with tax authorities. One should thoroughly read the catalogue of expenses that may not be considered expenditure, because any mistakes can be costly. And as we know, tax arrears and the interest on them we cannot include among tax expenditure either.