This case considered if expenses incurred by a self-employed geriatrician when travelling from a home office to visit clients and several other places of employment were allowable tax deductions.

Background

The taxpayer had a number of places of work; an office at his home, a hospital for the NHS, two private hospitals and occasionally he visited patients at their homes and other places.

The correct treatment for tax purposes of his travel expenses between the various places where he works was uncertain and the subject of the appeal.

The appeal focused on the different position taken by the taxpayer and HMRC concerning the expenses incurred from travelling between the NHS hospital and the private hospitals and between the home office and the private hospitals. HMRC argued that expenses for such journeys were not deductible for the purpose of computing the taxable profits whereas the taxpayer had claimed a deduction for such expenses in his tax returns.

The applicable legislation was section 74 Income & Corporation Taxes Act 1988 (“ICTA”) and section 34 Income Tax (Trading and Other Income) Act 2005 (“ITTOIA”). Both HMRC and the taxpayer agreed that the effect of both sections is the same; the expenses must be incurred wholly and exclusively for the purposes of the trade. However, whether the disputed expenses were incurred wholly and exclusively for the purposes of the taxpayer's private practice was the subject of appeal.

A number of pertinent case law precedents were relevant and these included the cases of:

• Newsom v Robertson [1952] 1 Ch 7 and (1952) 33 TC 45 - every trade, profession or occupation has a single base, all that was necessary was to identify the base and then it was quite clear that the cost of travel between the home and that base was not deductible.
• Horton v Young [1972] 1 Ch 157 - the general proposition that the place or places at which a man carries out the work he has been contracted for must necessarily be his place or places of business was rejected.
• Mallalieu v Drummond [1983] STC 665 - clarified the distinction between “object” or “motive” and “effect”, and in making clear that a court may look behind the conscious motive of a taxpayer where the facts are such that an unconscious object should also be inferred.

Arguments

The taxpayer's argument focused on the location of his “business base”. He contended that expenses incurred for travel between home and the business base (applying the Newson decision) were not deductible (the “commuting principle”), however, the travel must involve his home and the business base. As the private hospitals were not the taxpayer's business base the travel between his home and the hospitals was not precluded by the Newson principle.

If however, the private hospitals were considered a business base then travel between such a business base and his home would still be deductible as his home was also a business base and there was no other non-business purpose in such travel. The taxpayer submitted that the general “wholly and exclusively” rule only be applied and all his travel was undertaken solely for the purposes of his business and therefore it should all be deductible.

HMRC contended that travel between the taxpayer's home and the private hospitals clearly fell foul of the commuting principle and was not deductible. This was on the basis that, the taxpayer's profession was “based at the private hospitals where he sees and examines his patients”. HMRC's primary submission was that the journeys between the NHS hospitals on the one hand and the private hospitals on the other were essentially a detour on a “home to work commute”.

Decision

The Tribunal considered that the only statutory test to apply is the “wholly and exclusively” test set out in section 74 ICTA and section 34 ITTOIA. The principles to be derived from the case law authorities were an aid to interpretation but cannot override the section. However, insofar as the case law authorities lay down principles to be followed when applying the legislation to the facts of any particular case or class of cases, the Tribunal is bound by them.

Firstly, applying the principles from Mallalieu case, the Tribunal found no specific evidence was submitted as to the taxpayer's actual motive or object in making any of the journeys, beyond his assertion that the travel was all wholly and exclusively for the purposes of his business, which was based at his home. Therefore his home office was a business base.

The Tribunal next considered the Horton case given that this was the only case where a taxpayer succeeded in claiming a deduction for travel expenses to and from home. In the Tribunal's view, the Horton case is good authority for the limited suggestion that a taxpayer who can establish that his business base is at his home and that he has no place of business away from it can generally claim a deduction for his travel between his home and the various places where he attends from time to time for the purposes of his business.

However, this case differed from the Horton case most notably because the taxpayer in this case had a pattern of regular and predictable attendance at specific locations other than his home in order to perform significant professional functions as a clinician. He has negotiated an entitlement to avail himself of the facilities at those locations on a regular basis for the purposes of his business. It was the pattern of regular and predictable attendance to carry out significant professional functions as more than just a visitor which, in the Tribunal's view, constitutes both private hospitals as “places of business” from which the taxpayer has been carrying on his profession.

Travel to and From Home

However, the Tribunal considered it necessary to apply the general principle of travel to and from home to the current case as derived from previous case law. First, the Tribunal considered if the taxpayer's activities were sufficient to constitute his home as a place of business and found that the taxpayer did have a place of business at his home, where he carried out part of the professional work necessary to his overall professional practice as well as the majority of the administration work related to it.

But that did not necessarily mean that his travel expenses to and from his home were deductible. The statutory test, when interpreted in line with Mallalieu, sets a very high bar for deductibility of travel involving a taxpayer's home. The only reported case of the higher courts in which this bar has been cleared is Horton, and the Tribunal considered the present case fell short of Horton as outlined above.

The Tribunal found that the taxpayer must have a mixed object in his general pattern of travelling between his home and his places of business at the private hospitals. Part of his object in making those journeys must have been in order to maintain a private place of residence which is geographically separate from the two hospitals. It followed that even though the Tribunal held that the home was his place of business, his travel between home and the private hospitals could not be deductible, on the basis of the reasoning in Mallalieu.

Travel between NHS Hospitals and Private Hospitals

Drawing from a statement in the Newsom case ‘a man's profession is not exercised until he arrives at the place at which it is carried on’ the Tribunal considered that this was important in clarifying the distinction between travelling in the course of a business and travelling to get to the place where the business is carried on. In the case of the taxpayers travel between his places of NHS employment and private hospitals, the Tribunal considered the object of the travel is to put the taxpayer into a position where he can carry on his business away from his place of employment; the travel is not an integral part of the business itself. Therefore the expenses incurred between the NHS Hospital and private hospitals were not deductible.

Non-Routine Journeys to Meet Specific Patient Needs

The Tribunal found that where the taxpayer is visiting patients at their homes or at some other care facility all travel to and from such patient callouts is an integral part of his professional activities and should be deductible. There was no element of travelling to get to an established “place of business”.

The full text of this judgement is available from http://www.bailii.org