Some links will take you to some details of the case which decided the point, and some will just give you the name and year of the case. If you need a more detailed reference to help you find it in a law library, you're welcome to mail me .
The relevant statute law is found in section 198(1) of the Income & Corporation Taxes Act 1988 (formerly s189(1) ICTA 1970), which states:
'If the holder of an office or employment is necessarily obliged to incur and defray out of the emoluments of that office or employment the expenses of traveling in the performance of the duties of the office or employment, or of keeping and maintaining a horse to enable him to perform those duties, or otherwise to expend money wholly, exclusively and necessarily in the performance of those duties, there may be deducted from the emoluments to be assessed the expenses so necessarily incurred and defrayed.'
There are 3 conditions to be satisfied, ie:
A distinction is drawn between on the one hand, the expenses of putting and keeping oneself in the position to carry out one's duties (not deductible), and on the other hand, expenses one is 'necessarily obliged' to incur 'wholly exclusively and necessarily in the course of the performance' of the duties (deductible). The dividing line is not always easy to find, and it is not always easy to reconcile the reasoning in the cases with each other.
A deduction is allowed in respect of expenses, other than traveling expenses, wholly, exclusively and necessarily incurred in the performance of the duties of an office or employment [cases on Travelling Expenses].
An employee who has to bear the cost of upkeep of tools or special clothing necessary for his work is entitled to an allowance for the expenditure incurred, but suits needed for work are not an expense incurred wholly, exclusively or necessarily in the performance of that work, as a person has to wear something for cover and comfort, and a suit can be worn at other times [cases on clothing].
The cost to a minister of religion of stationery and communion elements is allowable, but not the cost of obtaining an augmentation of his stipend or outlays to obtain pulpit supply during holidays [cases on ministers of religion].
The expenses incurred by a person in obtaining employment, in putting himself in a position to perform his duties, or in maintaining himself while performing his duties, or his home while away on his duties, are not incurred in the course of those duties and are inadmissible [cases on costs of finding employment].
Thus the subscriptions of a local authority medical officer to professional societies [cases], hotel or lodging expenses incurred while performing the duties of the office or employment [cases on accomodation expenses], the cost of meals during a permitted break in the hours of work [cases on meals], the cost of a domestic servant at the home of a man and his wife both employed as schoolteachers [cases on domestic servants], or of a full-time consultant anaesthetist, and the cost of a telephone at the home of an airline pilot or National Health Service employee were inadmissible as deductions [cases on Phones].
So are extra expenses of living near the place of employment [cases on Additional Living costs].
Legal costs incurred in an action for recovery of salary, which is settled on the terms of no costs on either side , or in connection with litigation arising out of the purchase of a house, are not allowable deductions [cases on Legal costs].
Mess subscriptions are not deductible in assessing the pay of an army officer . Neither a bank manager's subscription to a club for the purpose of entertaining customers nor the costs incurred by a headmaster in following a course of adult education are deductible.
Examination fees paid to the Law Society by a solicitor's articled clerk are not deductible.
The taxpayer is also not entitled to deduct the costs of attending a foreign conference, even though advantages accrue to the employer, if it is impossible to say that the expenses were necessarily incurred in the performance of his duties.
Meals provided free or under subsidy on the employer's premises for the staff generally are not assessable if the meals are provided on a reasonable scale and either they are available to all employees or vouchers are provided in lieu.
No deduction for expenses incurred in providing business entertainment may be made from emoluments chargeable to tax under Schedule E.
Finally: there are proposals for change in the wind. A Press Release was issued on 28th November 1995.
Ricketts v Colquhoun (IOT) 1925 10 TC 118
In that case, a barrister living and practicing in London took a part-time position as the Recorder of Portsmouth. For the Recorder's position he was taxed under Schedule E and the case concerned the extent to which he could deduct the following expenses:
in respect of traveling expenses from London to Portsmouth and from Portsmouth to London: £8-5-0 in respect of hotel expenses at Portsmouth: £5-0-0 in respect of expenses incurred in consequence of wear and tear to his gown and court suit when sitting as a £0-10-0 Recorder: in respect of the price of stamps and stationery used by the Appellant as Recorder: £0-3-0 the sum of 10s being the amount of four payments of 2s 6d each made by the Appellant in Portsmouth for the £0-10-0 carriage of his tin box to the Court:
The deduction of costs of travel to Portsmouth was disallowed - 'it is for the purpose of his getting to the place where he has to perform his duties' - he could not show that he had to live out of the area there, or that there was no one who could have been appointed who could have lived in Portsmouth
The reason was that in order to qualify for relief, the expenditure must be that which 'each and every occupant of the particular office is necessarily obliged to incur in the performance of his duties'.
Roskans (IOT) v Bennett 1950
Griffiths (IOT) v Mockler 1953
O'Broin (IOT) v MacGiolla Meidre 1959
Miners v Atkinson (HMIT) (Times 1-12-95), a Special Commissioners' decision, affirmed on appeal to the Chancery Division . No new law, but I mention it because it is a recent case and there has been some discussion about it in the industry, and it illustrates the present state of the law - the point is that the restrictions on what sums an employed person (and this includes a contractor employed by his own company) can claim against tax are extremely restrictive. Travel and accommodation in particular.
In that case: Miners lived in Bedforshire. During the relevant time he worked through his own company for Lombards (finance ompany), first in Croydon (about 100 miles away) and then in Redhill (about 120 miles away). Mr & Mrs Miners bought a flat in Croydon for his occupation during the week. Key point - the home in Bedfordshire was the head office of the company but looked just like all the other houses in the street. Nevertheless the Bedfordshire house was held to be the base from which he worked. The question then was whether or not traveling to & from there was *wholly necessarily and exclusively* incurred *in the course of his employment*. It was held that because the Bedfordshire house/office was also his home, when he was going to & from there he was merely going to & from his home. The expense of travel between Bedfordshire and Croydon was therefore not 'wholly necessarily and exclusively incurred in the course of his employment'.
Comment:
In my view it *may be* that if instead of having the head office in the home, it had been in an office round the corner from home, and if Miners had been able to say that all the company correspondence went to that office; and that his travel was always from home to local office, then to Lombards, then to local office, then to home, he might have been able to get away with getting the travel expenses etc allowed as a deduction.
The basic problem lies in the fact that the allowances to the employed are much more restrictive than those to the self-employed. If, let us say, the company had been owned by Mrs Miners, Mr Miners had not been a director, and Mr Miners performed at least 10% of his work each year and got 10% of his income each year from another source, and was not employed by the company but invoiced the company as a consultant to the company, then he might have been able to get away with self-employed status and therefore liable to tax under Schedule D not Schedule E, with the more generous allowances that apply to Schedule D - the test then is simply 'wholly and necessarily', rather than 'wholly necessarily and exclusively in the course of' - which is very different.
[Return to Cases on Accomodation Expenses]
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Hillyer v Leeke (IOT) 1976 (expenditure on clothing)
Woodcock v IRC 1977
Ward (IOT) v Dunn 1979 (expenditure on clothing)
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Charlton v Corke 1890
Mitchell (IOT) v Child 1942 (rector allowed to deduct expense of opposing parliamentary bill affecting the parsonage house)
Jardine v Gillespie (SOT) 1907
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Shortt v McIlgorm (IOT) 1945 (commission paid to agency not allowable)
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Simpson (IOT) v Tate 1925 (subscriptions of Medical Office of Health to medical journals - not obliged to expend, not deductible; payments to enable a person to continue to be qualified are not deductible)
Wales (IOT) v Graham 1941
Fitzpatrick v IRC(No 2); Smith (IOT) v Abbott HL Times 18-2-94. Allowances paid to journalists by their employers to reimburse them some of their expenditure on purchasing newspapers and magazines were not deductible under s189(1) ICTA 1970 in assessing their Schedule E emoluments. The reading of such newspapers was not done 'in the performance' of any of the duties of the journalists' employment; it was merely preparatory reading done to ensure that those duties were efficiently carried out. Simpson v Tate 1925 referred to and approved.
'It did not matter whether the journalist was contractually bound to his employers to expend money in the purchase of other newspapers or whether he did so voluntarily. His duty was in the production of his employer's newspaper and he was not carrying out that duty when reading other newspapers.'
'The reasons for the strictness of the rule governing deductible expenses were not hard to find. If a journalist or other employee were allowed to deduct expenses incurred by him in his spare time on improving his usefulness to his employer, the imposition of income tax would be distorted and the amount of expenses claimed by an individual would depend entirely on his own choice. Moreover the principle of the decision did not apply only to journalists; the ramification of a decision in their favour would be enormous.'
'In all the cases there was but one question of law, namely whether on the facts and the true construction of section 189 the journalist incurred expense 'in the performance' of his duties when he selected, purchased and read newspapers and periodicals in his own time.'
In these cases the reading was done in the journalists' spare time.
Comment:
It might have been possible to avoid this result by imposing a contractual obligation to both buy and read the papers in question, and thus to shift the reading closer towards actually forming part of the duties of the employment, particularly if the reading was done in the working time. Alternatively, if the papers had actually been bought by the company, it is far less likely that there would ever have been a problem.
[return]
Ricketts v Colquhoun (IOT) 1925
Nagley v Spilsbury (IOT), Evans (IOT) v Richardson 1957 TR 15 (no deduction in respect of lodging expenditure by army officer or serviceman - army lodging allowances are income for tax purposes)
Elderkin (IOT) v Hindmarsh 1988 STC 267 (living allowance of part of subsistence costs paid to engineer required to travel for long periods - subsistence expenses were held not to have been incurred in the performance of the duties of that employment - based at sites for 9 days to 2 months at a time - not deductible - distinction drawn between eg area manager required in the course of his work to travel around his area ['a traveling employment'] and one directed by employer to work at a specific site, starting work on arrival and finishing when day's work over - it may be necessary to find accommodation nearby, but he did not live in the accommodation in the course of performing his duties - a man does not eat or sleep in the course of performing his duties).
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Durbridge v Sanderson (IOT) 1955
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Bowers (SOT) v Harding 1891
Osborn (IOT) v Swyer 1933 (medical officer required to live in house within precincts of hospital, and to pay in respect of his occupation an annual sum for rent, rates, and hot water; deduction in respect of this disallowed)
[return]
Hamerton v Overy (IOT) 1954 35 TC 76 (cost of telephone at home and subscription to medical defence union disallowed; Lomax v Newton relied on)
Nolder (IOT) v Walters 1930 15 TC 380 ('while he is getting there, he's not in the performance of his duties' - car and phone for pilot on call in 1930 disallowed; excess cost of overnight accommodation, subsistence, equipment & fees allowed; certain inescapable expenditure properly the expense of the employer was forced on the pilot, so that he in effect suffered a reduction of salary)
Lucas v Cattell (IOT) 1972 (installation and rental charges on telephone)
[return]
Bolam (IOT) v Barlow 1949 (employers required taxpayer to live within reasonable distance of specified place)
Collis v Hore (IOT) 1949
McKie (IOT) v Warner 1961 (employee only charged part of rent)
Roskams (IOT) v Bennett 1950 (no deduction for cost of lighting and heating room in which the taxpayer's sons did homework while he conducted his employer's business at home)
[return]
Eagles (IOT) v Levy 1934
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Griffiths (IOT) v Mockler 1953 (mess expenses disallowed)
Lomax (IOT) v Newton 1953 34 TC 558 (taxpayer was territorial officer and the expenditure disallowed included, besides mess expenses, payments to batman, hire of camp furniture and tickets to sergeants' dances; excess cost of hotel accommodation for attendance at conferences and exercises - the hotel was specified by the employer - over the official allowances was admitted as a deduction, it being found as a fact by the Commissioners that this item was necessarily exclusively and wholly incurred in the performance of his duties - the judge was unhappy about this finding of fact but felt he was bound by it. 'An expenditure may be 'necessary' for the holder of an office without being necessary to him in the performance of the duties of that office; it may be necessary in the performance of those duties without being exclusively referable to those duties; it may perhaps be both necessarily and exclusively, but still not wholly so referable')
Brown v Bullock (IOT) 1961 (bank manager expected but not obliged to incur expenditure in joining a club)
Elwood v Utitz (IOT) 1966 (company bore cost of subscriptions to a London club on the grounds that it was more economical to stay in a club than in a hotel when traveling on company's business; this amount was held allowable)
Humbles (IOT) v Brooks 1962 (teacher's expenses incurred in attending a course relevant to the subject he taught)
Blackwell (IOT) v Mills 1945
Owen v Burden (IOT) 1972 (attendance by county surveyor at international conference in Tokyo)
Perrons v Spackman 1981 (mileage allowance for car)
Donnelly v Williamson 1981 (mileage allowance for car)
Pook v Owen 1969 HL (doctor practicing in Fishguard, with part-time appointment giving duties to perform at Haverfordwest hospital - impossible for employer to fill the post other than with a person with other commitments he would not give up - traveling expenses necessarily incurred - deductible - case turned on the finding that his duties began on receiving phone call, and on the impossibility of finding someone else who could take the job without having to travel)
Bhadra v Ellam 1988 (similar expenses - doctor acting through agency engagements - duties commenced when he arrived at the hospital - not deductible)
Parikh v Sleeman 1991(?) (similar decision - GP served under separate contracts with 3 hospitals)
Taylor v Provan 1974 HL (travel expenses of international businessman from Canada to attend board meetings in UK deductible - the job required him to work in both places - impossible to find anyone else to do his particular job - expenses were necessarily incurred traveling between two places of work)
Lord Bruce v Aspden 1981 EC (not permissible to charge UK tax on lump sum payments by way of reimbursement of expenses to a UK member of the European Parliament - unless it can be shown that reimbursement is in part remuneration; not very useful - case seems to turn on law peculiar to MEP's)
Smith v Stages 1989 HL 1 AER 833 (Employee required to work temporarily at a different place of work, returning home in employer's time for which he was paid - the journey was in the course of his duties and the employer was therefore vicariously liable for torts committed)
[return]
There are proposals for a change in the rules under discussion at the moment.
A Press Release was issued on 28th November 1995 as follows:
EMPLOYEES' TRAVEL AND SUBSISTENCE
It was announced today that the Financial Secretary to the Treasury, Michael Jack MP, has asked the Inland Revenue to prepare a consultative paper on possible changes to simplify the current Schedule E rules covering travel and subsistence expenses incurred by employees in the performance of their duties. This will be published next Spring and will contain proposals and draft legislation intended to:
NOTES FOR EDITORS
Under the current income tax legislation, employees get tax relief for traveling and subsistence expenses only if they are necessarily incurred in the performance of the employee's duties. Usually this means travel between one place of work and another. Journeys between an employee's home and normal workplace do not qualify for relief.
The consultative paper will invite views on draft proposals to deal with the following matters
A Press Release will be issued when the consultative paper is available
(Treasury copyright acknowledged)
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I'd really appreciate your feedback on this FAQ - so mail me and tell me what you think of it, if it's been useful to you, or let me know of any specific problem you have where I may be able to help.
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