[2010] UKFTT 551 (TC)

TC00804

Appeal number TC 2009 09807

Income tax – employment income – self-assessment – expenses working away from home

FIRST-TIER TRIBUNAL

TAX 

	GEORGE HUNTLEY	Appellant

	- and -

	THE COMMISSIONERS FOR HER MAJESTY’S
	REVENUE AND CUSTOMS (income tax)	Respondents

				TRIBUNAL: 	Judge David Williams
						William Silsby CTA

Sitting in public in Cardiff on 8 09 2010

The Appellant in person 

Mr Massey, an officer of Revenue and Customs, for the Respondents

© CROWN COPYRIGHT 2010

DECISION

1	This appeal deals with the application in an individual case of income tax legislation that applies to all self-employed individuals who are liable to tax. The problem is about the amount of expenses allowable when the individual works away from home. It raises no new point of law or practice. It is therefore unfortunate that the relations between the parties have been such that the appeal generated a disproportionate amount of correspondence over an extended period before it came to a tribunal. It is precisely the sort of case that should either be settled or should be listed for early hearing so that excessive pre-trial exchanges over an unnecessary period are brought to an early conclusion. The tribunal can only comment that most of the large numbers of papers in the file before it added considerably to the heat of the contest while adding very little to the light by which it must be viewed.
2	The level of aggression illustrated in documents produced by the Appellant before the tribunal was, in the view of the tribunal, entirely misplaced. It led to an action by the Respondents (referred to in this decision as “HMRC”) that the tribunal regards as entirely unacceptable. HMRC had indicated to the Appellant, in reply to correspondence, that the officer of Revenue and Customs who had made the decisions under appeal would attend as a witness at the hearing and would answer questions. Shortly before the hearing that officer was withdrawn as a witness. At the hearing the tribunal asked HMRC why this was so. Part of the answer was that the officer’s senior managers had considered it to be in the interests of the officer’s health and safety. This was because of statements made by the Appellant in the correspondence leading to the hearing. While the tribunal in no way condones some of the comments made by the Appellant in writing, the tribunal made it clear to the officer representing HMRC at the hearing that this was entirely unacceptable as a ground for not producing a witness. Such matters are entirely for the tribunal and those assisting the tribunal. All tribunals have arrangements in place to deal with any threat to personal safety and all tribunal judges are aware of them. A tribunal will consider an application if there is some relevant personal physical or mental disablement relevant to the attendance of an individual witness. There was no suggestion of this in this case. 
3	The tribunal indicated that if necessary it would take steps to have the witness summonsed. It also reminded the parties that it had the power to refer the matter to the Upper Tribunal for enforcement and that the Upper Tribunal had all necessary powers to ensure a witness attended. The tribunal then invited the officer to take further instructions, adjourning briefly for this to take place. The tribunal is content to record that, upon further instructions, the officer representing HMRC indicated that, although practical reasons prevented the witness attending immediately on that day, HMRC would ensure the witness did attend at a hearing without the need for a summons if the tribunal so directed. The tribunal directed that it would proceed to hear the case without evidence from the witness, and would take into account any absence of evidence from her in reaching its decision, unless it became clear during the hearing that the attendance of the witness was necessary. In the event, attendance was not necessary and the tribunal heard the case in full without further adjournment.   
The decisions under appeal
4	The main decision under appeal in this case covers a narrow and specific point of fact. The appellant’s self-assessment tax return for 2005-2006 was submitted for him by his accountants. In the return, the appellant claimed, at box 3.56, a deduction from taxable income of £11,030 for expenses for travel and subsistence. This was challenged by an officer of Revenue and Customs. No other aspect of the income, or claimed deductions or expenses, was in question. To put that figure in context, the claim was for total expenses of £15,624 to be set against total income from that source of £43,350, leaving net profit of £27,726. Other sources of income were also declared, but they are not relevant here. 
5	Notice of enquiry into that return was given in proper form on 15 08 2007. The initial enquiry was into deductions for motor expenses, travel and subsistence, and other expenses claimed by the accountants for their client. The initial reply produced such information as was available by way of contemporary diary notes and invoices to explain the deductions.   
6	Documents produced showed that the gross income returned by the appellant was substantially accurate, and that income tax had been deducted from that income as paid under the usual sub-contractor procedures. But the invoices produced explained only a quarter of the claimed expenses, and did not do that with any clarity. There were, for example, receipts indicating the purchase of two meals rather than one. The appellant took over the handling of the appeal from his accountants during this correspondence. He asserted that he had based his claim on a deduction of £250 for expenses for each week he worked away from home, and that this was the basis of his claim.
7	In correspondence that followed, the appellant produced his bank statements. They were statements of his joint account with his wife. He made much at the hearing, and in the correspondence, of the private nature of these accounts and of what he felt was wrongful use of the information by HMRC. The tribunal explained to the appellant that it was his decision to use a joint account for business purposes. He had used it for business purposes and, that being so, it was entirely appropriate for officers of Revenue and Customs to see it and question the entries in it. The tribunal saw nothing wrong in law in this aspect of the way in which HMRC sought to resolve its queries about the appellant’s self-assessment return.
8	Following its investigation of the bank statements, HMRC took the view that it was prepared to accept evidence from the bank statements in addition to the evidence of the receipts. By reference to the location of cash withdrawals and expenditure from the bank account, it was prepared to agree that the appellant had shown that he had incurred subsistence costs away from home of £5,020 as against the £11,030 he had claimed. An adjustment of the difference, £6,101 was made to the return. 
9	It is that adjustment, made on 18 June 2008 that is now under appeal. While correspondence continued after that date the tribunal can see nothing that assists it, and much irrelevant material, arising after that date.
10	Among issues raised by the appellant in that later correspondence were issues about human rights and European law. The tribunal sees no possible relevance of European law to this issue, which is purely one of United Kingdom personal income tax. Nor can it see any relevance in the general assertion that the appellant’s human rights were involved. No specific allegation of any breach of human rights was made, and the tribunal sees no basis for any. Finally the tribunal must add that the appellant referred to breaches of the criminal law. It is clear to the tribunal that the appellant did not understand some of the assertions he alleged (for example that perjury had been committed when no one had at any time been on oath). It told the appellant that if he had any grounds for alleging some of the breaches he alleged as breaches of the criminal law then the proper course of action was to have informed the police at the time he thought those events occurred. 
11	It is no part of the role of this tribunal to decide on any of the administrative aspects of the conduct of HMRC unless it is directly relevant to the appeal. For the avoidance of doubt, the tribunal considered at the hearing the specific powers used by HMRC to adjust the self-assessment return of the appellant for 2005-2006. It is satisfied that HMRC conducted the enquiry entirely in accordance with its powers and reached a decision it had power to reach. 
12	The question for the tribunal is therefore whether it agrees with that decision, or with the appellant, or takes some other view of the proper outcome of the enquiry. In doing so it has the advantage of hearing the appellant and seeing all the available documentary evidence.
The subsistence expenses
13	In his evidence to the tribunal, the appellant was unable to explain precisely how he reached the figure of £11,030 in his return. He could not now recall the basis on which he arrived at that figure and he did not have any contemporary note of a calculation that produced the figure. He repeated the statement made in the correspondence that he had claimed £250 for each week he was away from home.
14	The first question for the tribunal is therefore that of the number of weeks that the appellant worked away from home, and at the same time the number of days within a week that the appellant worked away from home. The tribunal had four sources of evidence before it on this issue: the appellant’s oral evidence; the self-billing certificates issued by the contractor with whom the appellant worked showing the work he had done in any week, and its location; what appeared to be a random collection of vouchers explaining some expenses; and bank statements showing some further items of relevant expenditure and in addition sums taken from ATMs in towns away from home. 
15	On the basis of this evidence, the tribunal is satisfied that the appellant worked away from home for at least a significant part of each of 42 weeks in the 2005-2006 tax year. This does not include days in which he travelled from home to work, and then back, on a daily basis. The evidence is less clear about how many days the appellant was away from home in each of those weeks. Evidence suggested that he probably worked two weekends away from home over the year, but also that there were weeks when he was away from home for two or three days only. The tribunal accepted his evidence, backed by some of the documentary evidence, that he was away from home typically for four nights (Monday to Thursday) and five working days most weeks. It takes that as the average week and applies that average, as a mean figure, to all the 42 weeks.
16	HMRC accepted that the appellant was entitled to reasonable subsistence costs for each of the days and nights he was away. The standard rule is that those expenses must be shown to be wholly and exclusively for the purposes of the self-employment. The tribunal agreed with Mr Massey that there was no tariff figure for this, and that it depended on all the evidence. Here the evidence, aside from the appellant’s oral evidence, was of the receipts that were produced, a number of the entries in the bank account, and a couple of advertisements produced by the appellant at the hearing about the menus and special offers at places where he ate. 
17	There was clear evidence from the appellant and from receipts that the appellant was able to obtain accommodation he regarded as reasonable for £30 a night on a number of occasions during the year. In the absence of other evidence, the tribunal accepts that as a reasonable amount for each night away from home. On the assumption that there is an average of 4 nights away on each of 42 weeks, this amounts to £5,040 allowance expenditure for accommodation. On the evidence before it, the tribunal takes this to include a breakfast.
18	The evidence before the tribunal on lunches came mainly down to oral evidence of the appellant and some receipts, as little attention seems to have been paid to this specific aspect of the claim in the correspondence. The appellant told the tribunal, and the tribunal accepts, that most weeks the appellant was able to eat in the onsite canteen or work facility, and that he would have some kind of hot or cold snack and drink bought as a takeaway (such as fish and chips). That seems to the tribunal entirely reasonable, and that the cost of that meal should be included in the subsistence costs. So should the cost of a typical evening meal for someone who has been engaged in physical work during what was sometimes a long working day and who had had the kind of lunch just discussed. The appellant was clearly a robust individual and would be expected to eat accordingly. On the basis, again of the available evidence including the receipts, the advertisements and the appellant’s oral account of his choices of lunches and evening meals, the tribunal is prepared to accept that a round figure of £5 for each lunch and £15 for each evening meal would be appropriate. In an average week this would account for five lunches and four evening meals, a total of £85 a week and an annual total of £3,570. In response to questions from the tribunal, it was accepted for HMRC that expenditure on lunches and evening meals could, on the facts, include the cost of reasonable liquid refreshment. 
19	The two totals of £5,040 and £3,570 produce a full total for subsistence of   £8, 610. That also, in general terms, appears to the tribunal to be a reasonable figure given the extent to which the appellant worked away from home in the year and the level of income he was earning while away from home. On that basis the tribunal is unable to accept the figure claimed of £11,030. But it also considers the final figure adopted by HMRC of £5,020 to be too low. 
20	It therefore allows the appeal against the adjustment of the return for 2005-2006 in general terms but replaces the adjustment made (previously £6,010) with an adjustment of  £2,420, namely £11,030 less £8,610.
21	The tribunal was told by HMRC that it was seeking no penalties in connection with this figure, but would seek interest. HMRC is entitled to interest on outstanding tax, and the appropriate interest is to be calculated by HMRC and added to the adjustment. In the event of any dispute about the amount of that adjustment, the figure may be referred for determination by either party to the tribunal.
Adjustments for earlier years
22	HMRC also made decisions, based on its discovery powers in section 29(5) of the Taxes Management Act 1970, to the years 2002-2003, and 2003-2004. It had not made an adjustment for 2004-2005 because the view had been taken that this was not significant. 
23	The tribunal accepted that HMRC was entitled to take a decision about 2004-2005 but had chosen not to do so. That matter was therefore not under appeal to the tribunal.
24	The tribunal examined the contended basis on which HMRC sought to adjust the figures for the two earlier years, and the appellant’s basis for his claims for those years.
25	The appellant claimed expenses for subsistence in 2002-2003 of £8,198 against a gross income of £36,812, and in 2003-2004 of £6,038 against a gross income of £30,200. The appellant told the tribunal at the hearing that he was now unable to tell the tribunal on what basis those subsistence figures had been entered into his return. He assumed that he had given the figures to his accountants but he had no contemporary records and could not firmly state that. But he accepted that there was no particular difference in the way he had worked, or the way he had kept his accounts, or the way that he had instructed his accountants in either of those years as compared with 2004-2005 and 2005-2006. He made the point, which the tribunal accepts, that when he worked less away from home, he claimed less – in particular on 2004-2005. But he could not assist the tribunal further in precise figures. Nor did the tribunal have before it the same evidence about payment by the contractors for work away from home, or bank statements. 
26	The tribunal observes that there is no underlying ratio in these figures between total earnings and the subsistence expenses claimed. The ratio for 2005-2006 was a little over 25 per cent. That for 2002-2003 was a little under 20 per cent and that for 2003-2004 was 22 per cent. The ratio between the gross earnings for 2005-2006 and the figure determined by the tribunal for subsistence was just under 20 per cent.
27	In the absence of any further and better evidence the tribunal applies the same reduction in allowable expenses in 2002-2003 and 2003-2004 as it has established on the evidence for 2005-2006. It does so not as a matter of law or precedent but because on the facts it sees no basis in the evidence before it for finding that there was any material difference to the approach the appellant took to his work and his records, and no material difference in the nature of the work away from home, between any of those years.
28	On that basis, the tribunal finds as follows. In 2003-2004, the expenses claimed were £6,038. The view taken by HMRC was that £2,500 should be added back to the profits for that year because the claim for subsistence was excessive to that extent. This was based on a carry back of the ratio of subsistence expenses to total earnings from 2005-2006. The tribunal takes the view that on the evidence before it and its own findings, an adjustment should be made to that claim to the same extent of the adjustment in the later year. The tribunal has accepted that expenses of £120 for accommodation and £85 for food and drink, a total of £205, should be allowed for a week in place of £250. The tribunal therefore reduces the appellant’s claimed expenses for that year by 205/250 of £6,038, leaving an allowable total of £4,951. Accordingly, the appellant’s return for that year should be adjusted by the difference, a sum of £1,087.  
29 	Applying the same basis to 2002-2003, the original claim was for £8,198. Reducing that by 205/250 brings it down to £6,722. That is a reduction of £1,476. Accordingly the appellant’s return for that year should be adjusted by £1,476. 
Conclusion
30	In summary, the tribunal allows the appeal of the appellant against the adjustment of his self-assessment return for 2005-2006 and replaces the adjustment for that year of £6,010 with an adjustment of £2,420. It allows the appeal against the adjustment for 2003-2004, and confirms that the adjustment for that year should be £1,087. It allows the appeal against the adjustment for 2002-2003 and replaces the adjustment for that year of £4,000 with an adjustment of £1,476. Interest is payable on those adjustments. HMRC have not sought penalties for any of these years and the tribunal confirms that no penalties attach to those adjustments. 
31	The tribunal has given a full reasoned decision about its findings of fact on these matters because of the unusual level of animosity the appeal generated. But it sees no reason to lengthen this decision by reference to the very clear and long established rules of law that apply to the expenses of the self-employed and to the powers of HMRC to enquire into any sums claimed in a self-assessment return. This is because it sees nothing in this appeal to warrant any reconsideration of these well established tax rules. In particular, the tribunal emphasises that while it agrees in part with the appellant’s appeal on the central question before it, it can see nothing in any of the many issues raised by the appellant about the HMRC enquiry in this case that takes it in any way outside the powers available to HMRC or its usual approach to the use of such powers. The appellant was, as are all self-employed earners, under an obligation to keep full records. He did not do so, and he was unable to show on any clear basis why he claimed the precise figures claimed for him in his tax return. Those are the two reasons why his return was challenged. And they are the two reasons why the tribunal was unable to agree with his appeal in full.            
   
                                                 David Williams
TRIBUNAL JUDGE
RELEASE DATE: 5 November 2010