The High Court held that a surgeon's expenses for examination fees, associated accommodation and related expenses were not deductible from his earnings under ITEPA 2003, s. 336(1) in respect of his self assessment for the tax year 2003–04 since they had not been incurred wholly, exclusively and necessarily in the performance of the duties of his employment.

Facts

The taxpayer was a qualified registrar in general surgery employed as a specialist registrar at an NHS Trust. He was required under the terms of his contract of employment to attend specific training courses for the purposes of obtaining a Certificate of Completion of Specialist Training (CCST). That involved him attending courses, examinations and appraisals. The type of contract under which the taxpayer was employed had been set up to encourage more doctors to become better qualified as specialist surgeons. At the end of the contract the taxpayer was awarded the CCST which allowed him to seek a position as a consultant.

The taxpayer sought to deduct his examination fees and accommodation and related expenses from his earnings in accordance with ITEPA 2003, s. 336(1). However, the Revenue rejected his claim on the basis that the expenses had not been incurred ‘wholly, exclusively and necessarily in the performance of the duties of the employment’ as required by s. 336. The general commissioners allowed the taxpayer's appeal against that decision. They took the view that the taxpayer was not only employed as a specialist registrar trainee and that it was inherent in his contract that he would obtain the CSST so that he could become a specialist surgeon. The NHS trust was a training authority for specialist surgeons and therefore made passing the examination an obligatory part of the contract of employment.

The Revenue appealed contending that the commissioners had failed to address the question whether attendance at the examinations was ‘wholly, and exclusively and necessarily in the performance of the duties’ of his employment as a specialist registrar. Instead they had focused solely on the issue of whether the taking of the examinations was a contractual requirement. In so doing they had erred in law and, in any event, they had misconstrued the taxpayer's contract in concluding that it was a term of his contract that he passed the CSST examinations.

Issue

Whether the expenses in question had been incurred ‘wholly, exclusively and necessarily in the performance of the duties of the [taxpayer's] employment’ pursuant to ITEPA 2003, s. 336.

Decision

Patten J (allowing the appeal) said that expenditure was not ‘necessarily incurred’ just because an employee was obliged by his or her employer to incur such expenditure. It must also have been incurred ‘in the performance of the duties of the office or employment’. The test was not whether the employer imposed the expense but whether the duties did, since, irrespective of what the employer might prescribe, the duties could not be performed without incurring the particular outlay.

It was clear from the authorities that it was not sufficient that taking the examinations was a contractual requirement; nor that the purpose of the requirement was to enable the taxpayer ‘to become a better surgeon’ or to qualify him to become a consultant. The mere fact that the taxpayer's employer had imposed on him the duty to take the examinations did not necessarily make the examination fees deductible. The expenses had to be incurred not only as an obligation of his employment but also because they had to be necessarily incurred due to the nature of the duties of employment. (Blackwell (HMIT) Mills (1945) 26 TC 468, Brown v Bullock (HMIT) (1961) 40 TC 1, Fitzpatrick v IR Commrs [1994] BTC 66 and Snowdon v Charnock (HMIT) (2001) Sp C 282 applied).

In the present case, the commissioners had erred in law by asking simply whether it was a term of his contract that the taxpayer should obtain the CCST and concluding that the expenses in question were deductible under s. 336. The issue was whether sitting the examinations to enable him to be qualified to apply for a consultant post was necessary for the performance of his duties as a specialist registrar, which he was already qualified to do.

Had the commissioners asked themselves the correct question, the only conclusion on the facts found was that the taxpayer's expenses were not incurred wholly and exclusively and necessarily in the performance of his duties as a specialist registrar. The purpose of the examinations and CSST qualification was to better qualify him for his duties and to enable him to apply for a more senior post which were not expenses deductible form his earnings under s. 336.

Chancery Division.
Judgment delivered 9 May 2007.