A special commissioner decided that an employee was not entitled to deduct expenses incurred in connection with his employment as a scaffolder where the sums in question had not been expended wholly, exclusively and necessarily in the performance of the duties of his employment within ICTA 1988, s. 198.

Facts

The taxpayer was a scaffolder, resident in Preston, Lancashire. He had periods of employment and self-employment during which he worked on various construction sites in the London area and on the weekdays of each week of such employment occupied temporary accommodation at a public house.

For the periods during which the taxpayer was employed he claimed various expenses for travel, accommodation, food, etc. No vouchers or receipts were produced to support the various claims, nor was any further information provided to indicate the basis on which the different amounts claimed had been calculated.

For the period during which the taxpayer was self-employed in 2001–02, similar expenses claims were submitted. Again, with the exception of the accountancy charges, no vouchers or receipts were produced to support the claims, nor was any further information provided to show how the amounts claimed were calculated.

An issue arose whether those expenses were deductible in calculating the taxpayer's taxable income for the relevant years. The Revenue observed that prior to 6 April 1998 the only travelling expenses allowable to employees were those incurred in the performance of the duties of the employment, but that in April 1998 the rules were extended to include relief for qualifying travelling expenses. They submitted that the travelling expenses claimed by the taxpayer were those of ordinary commuting, and thus not allowable. The expenses claimed were not those of travelling between Preston and London, but those of travelling between the taxpayer's accommodation address in London and the sites at which he worked; they merely put him in a position to carry out his duties. The costs incurred could not be deducted; the expenditure was not incurred ‘in the performance of the duties of the office or employment’ as required by ICTA 1988, s. 198.

Issue

Whether expenditure claimed by the taxpayer on travelling expenses, subsistence costs, accommodation costs and mobile phone costs qualified for deduction under ICTA 1988, s. 198; whether in computing his profits for a period of self-employment, the taxpayer was entitled to a deduction under ICTA 1988, s. 74 in respect of expenditure on accommodation, travel and subsistence; and whether the taxpayer was assessable to tax under Sch. E in respect of additional earnings of £1,175.

Decision

The special commissioner (Mr D Demack) (dismissing the appeal) said that, applying the principle laid down by the House of Lords in Ricketts v Colquhoun (1925) 10 TC 118, the taxpayer was not necessarily obliged to incur the travelling expenses and did not wholly, exclusively and necessarily incur the accommodation costs. The expenses in question satisfied neither of the tests to be applied. The deduction for travel expenses which the taxpayer sought related only to travel between his accommodation address and his place or places of work. The accommodation address was ‘a place that is not a workplace in relation to the employment’ in accordance with ICTA 1988, Sch. 12A, para. 2(3) where ‘workplace’ meant a place at which the employee's attendance was necessary in the performance of the duties of the employment. The places to which the taxpayer travelled were ‘a permanent workplace in relation to the employment’, and thus his travelling was ‘ordinary commuting’ as defined in Sch. 12A, and not allowable.

If places of work were temporary, expenditure incurred in travelling to them was not ‘ordinary commuting’ and was not excluded from ‘qualifying travelling expenses’; but they were not temporary workplaces in the taxpayer's case. Some workplaces or sites at which the taxpayer had worked had been identified in relation to the tax year 2001-02, but none had been disclosed for 2002-03. In any event, the Revenue had insufficient information to enable them to accept that the taxpayer's places of work had been temporary, but even if they had, the claim had to be disallowed because there was no change in the travelling expenses incurred by the taxpayer, and thus there was no ‘substantial effect on the employee's journey or expenses of travelling to and from the place where the duties fall to be performed’ (see ICTA 1988, Sch. 12A, para. 5(2)).

In relation to the taxpayer's claim for subsistence costs and accommodation expenses, travel expenses included the actual cost of travel and also the subsistence and other associated costs incurred as part of the total costs of making the journey. Thus the costs of business travel included the costs of any necessary subsistence attributable to the journey, including overnight accommodation and any necessary meals. However, as the taxpayer's claim for travel expenses was not allowable as relating to commuting, neither for the same reason were his subsistence and accommodation expenses claims. Further he had supplied no evidence of his having incurred the expenses claimed (Elderkin (HMIT) v Hindmarsh [1988] BTC 129 referred to).

Further, the taxpayer had provided the Revenue with no evidence to support his claim for mobile phone costs, which in any event was in round sums; and there appeared to be no reason why a scaffolder would be required to spend £20 per week on such costs. The taxpayer had neither shown that he had incurred the expenditure claimed, nor that it had been incurred in the performance of his duties and the deduction was not due.

The taxpayer had supplied no evidence to show that he had incurred the expenses claimed. In any event, Ricketts v Colquhoun, suggested a duality of purpose to the expenses. The taxpayer needed to live somewhere and to eat to live, so that the deduction for subsistence and accommodation was not due. The rules applicable to Sch. E allowed the deduction of money, other than travelling expenses, expended ‘wholly, exclusively and necessarily’ in the performance of the duties concerned. Those words were confined to expenses incurred in the performance of the duties of the office, and which were wholly, exclusively and necessarily so incurred.

In relation to the taxpayer's claim to be entitled to deduct accommodation and subsistence expenses from his profit while he was self-employed, again the sums claimed were in round figures and unsupported by evidence that the expenditure had been incurred and no deduction was due. There was an inherent duality of purpose and the deduction claimed was not due. The taxpayer had also declared earnings of £1,175 for a short period of time in 2001–02 when he was employed by a company instructed by the Revenue to operate tax code 438L on a cumulative basis, which resulted in it deducting no tax from the taxpayer's earnings. The Revenue now accepted that the allocation of that code number was an administrative error on their part, and that tax on the taxpayer's earnings should have been deducted by his employer. They further accepted that liability for PAYE was that of the employer, so that an employee was entitled to a credit therefore in his self-assessment, even if the tax was not paid by the employer. In the circumstances, the Revenue agreed that the taxpayer was entitled to a tax credit of £258.50, and to that extent his appeal had to be allowed.

As regards the claim by the taxpayer for an allowance for travelling expenses incurred in 2001 during a period of self-employment, although the Revenue did not necessarily accept that the deduction was due, since the tax inspector concerned had conceded the issue by letter, the Revenue considered themselves bound to allow the deduction. The allowance claimed amounted to £351, and by consent to the extent of tax on that amount the appeal was further allowed.

(2006) Sp C 576.
Decision released 28 December 2006.