Deductibility of training expenses against Schedule E income under section 198 Income and Corporation Taxes Act 1988

The taxpayer was a specialist registrar in dermatology with the NHS. She was engaged under a succession of employment contracts and under the terms of such contracts she was required to attend various training courses. She claimed a deduction against her Schedule E income for the expenses incurred in attending the training courses and conferences. HMRC refused the deduction and the case was brought to the General Commissioners of Income Tax and then to the High Court. The current case concerns the appeal brought by HMRC against an order of the High Court (June 2009) which dismissed their appeal against the General Commissioner's decision (August 2005) that the training expenses incurred by the taxpayer were deductible.

The key to the issue raised by the appeal lay in the analysis of the taxpayer's employment contract, particularly the duties required of her in performing it. HMRC's argument was that the beginning and end of the duties that the taxpayer had to perform in her capacity as specialist registrar, under the contract, was attending to patients. The contractual requirement that she must also attend the various training courses was not carried out ‘in the performance’ of those duties but merely enabled her to perform them better and/or to improve her general professional skills.

Considering the previous findings made by the General Commissioners and High Court, the Court considered there was no reason in principle why the taxpayer's successive contracts could not be characterised as ‘training’ contracts by which she was employed – and paid – to undergo both practical and theoretical exercises. It followed that the training expenses were necessarily incurred in the performance of her duties under those contracts. The Court of Appeal upheld the decision of the General Commissioners and the High Court; “the Commissioners were entitled to find not only that the expenditure was “necessarily” incurred in the performance of her duties as an employee but also “exclusively”.

HMRC's appeal was dismissed.

The full text of the judgment is available at http://www.bailii.org/cgi-bin/markup.cgi?doc=/ew/cases/EWCA/Civ/2010/843.html&query=Banerjee&method=boolean