[2009] EWHC 62 (Ch)

The Chancery division of the High Court has arrived at that rarest of tax decisions – a Schedule E expenses claim in favour of the taxpayer.

The taxpayer is a consultant dermatologist, Dr Piu Banerjee. The main issue was whether Dr Banerjee was entitled to claim deductions under s198 ICTA 1988 from her pay as a specialist registrar in dermatology in the three tax years 1997/98, 1998/9 and 1999/2000 in respect of expenditure incurred by her in attending educational courses, conferences and meetings, including associated costs of travel and accommodation.

It was common ground that, if the costs of Dr Banerjee's attendance on or at the courses, conferences and meetings were deductible, the same treatment would apply to the associated costs of travel and accommodation. The only question was whether the amounts were expended by her wholly, exclusively and necessarily in the performance of the duties of her employment, and whether she was obliged to incur and defray the expenditure out of the emoluments of her employment. The learned judge noted from the case law that this was a difficult test to pass. It seems that this case, the facts were particularly precise in the taxpayer's favour.

Dr Banerjee was employed by two NHS trusts, and it was a written condition of her employment that she carry out certain monitored training. Attendance by Dr Banerjee on the training courses was compulsory, her attendance was also necessary if she was to proceed to become a consultant dermatologist; and if she had not fulfilled her training requirement during her period of employment as a specialist registrar, that employment would have been terminated. Various evidence was presented to support these facts, and it was also emphasised that Dr Banerjee's contracts were not unique to her – similar requirements were placed on other doctors employed by NHS trusts.

The learned judge found that Dr Banerjee's job essentially was a training post, and this distinguished her case from other cases where training expenses had been disallowed. As such, the training expenses passed the “wholly” and “necessarily” tests. He then proceeded to focus on the “exclusively” test, which as he noted is directed at which is directed at duality of purpose. Attendance at the courses would “promote Dr Banerjee's personal professional development and advance her knowledge” but this was really of secondary importance to the fact that under her contract, she would be fired if she didn't attend. Unless it was possible to assign lesser importance to some consequences of an action, the “exclusively” test could never be passed, and that interpretation would be too extreme.

“It is always” said the judge “necessary to focus on the particular facts of the case in question, and to ask oneself whether they satisfy the statutory criteria”. He acknowledged that Dr Banerjee's employment situation was “a relatively unusual state of affairs, but it is not conceptually impossible or obviously absurd; and where that is the true state of affairs, as found by the sole tribunal of fact, I can see no error of law in the conclusion that expenditure incurred on attending the courses is deductible.”

In a separate but parallel judgment, the court decided against Dr Banerjee's application for the judgment to be anonymised.

The full text of the case is reproduced in the Selected Judgments section of this issue of tax.point and is also available on-line at http://www.bailii.org/ew/cases/EWHC/Ch/2009/62.rtf.