[2011] UKFTT 213 (TC)

TC01078
Appeal number:  TC/2010/04316

Income tax – self-employed construction worker  – taxpayer living in Midlands, working in Kent – living away during the week – travel, food and accommodation expenses – whether incurred wholly and exclusively for the purposes of the trade – no – desire to live at home was at least part of the reason for the travel – location of base of operation in Kent, not at home – private element of purpose of travel could not be regarded as incidental to predominant business purpose – allowability of food and accommodation expenses followed that of travel expenses - appeal dismissed	

FIRST-TIER TRIBUNAL
TAX

	TIMOTHY DAVID HANLIN	Appellant	

-and-

	THE COMMISSIONERS FOR HER MAJESTY’S REVENUE AND CUSTOMS (INCOME TAX)	Respondents	

TRIBUNAL:	KEVIN POOLE  (TRIBUNAL JUDGE)
DAVID KIPPEST	

Sitting in public in Birmingham on 15 November 2010

The Appellant did not appear and was not represented
Cheryl Payne-Dwyer, Senior Officer HMRC for the Respondents

© CROWN COPYRIGHT 2011

DECISION

Introduction
1.	This appeal relates to amendments to the Appellant’s self assessment tax returns for the two years ended 5 April 2007 and 2008.  HMRC have amended those returns to disallow certain expenses (mainly related to travel, accommodation and subsistence) and to adjust the reported turnover of the Appellant and his expenses incurred on materials.  The figures involved are not in dispute, only the appropriate treatment of them for tax purposes.  We issued a summary decision on 23 November 2010.  The Appellant applied for the decision to be set aside and, upon that application being refused, has requested full written reasons for the original decision.
Background and history
2.	The evidence before us was that contained in the bundles produced to us (largely comprising correspondence between the Appellant and HMRC).  The Appellant himself did not attend the hearing to give evidence.  
3.	The Appellant carried on business as a self-employed subcontractor doing repair and maintenance work.  The nature of his activities was such as to bring him within the Construction Industry Scheme, which required deductions on account of tax from all payments made to him.
4.	In the Appellant’s self-assessment tax return for the year ended 5 April 2007, he claimed to deduct travel and subsistence expenses of £13,760 and motoring expenses of £450 (to cover items such as MOT, insurance and minor repairs).  The travel and subsistence expenses were made up as follows:
(1)	Petrol costs of £4,160 for weekly travel between his home in Coventry and his place of work at Dungeness Power Station in Kent;
(2)	Overnight accommodation costs of £4,800 for staying in Dungeness during the week (48 weeks, four nights per week, £25 per night); and
(3)	Evening meal costs of £4,800 whilst away from home in Kent (48 weeks, four nights per week, £25 per night).
5.	In the Appellant’s self-assessment tax return for the year ended 5 April 2008, he claimed to deduct £3,056 for car, van and travel expenses and £9,600 for other business expenses.  HMRC understood (and the Appellant did not say they were incorrect in doing so) that the £3,056 represented the cost of travel from his home in Coventry to Dungeness on a weekly basis and the other £9,600 related to overnight accommodation costs and evening meals on the same basis as the previous year.
6.	In the same return, the Appellant also reported turnover of his business as £24,000; however his only work during that year was for a construction company owned by his family and called Hanlin Construction Limited and on the CIS returns from that company, the Appellant was shown as having received £25,200 from them (of which £2,000 related to materials supplied by the Appellant and recharged to the company).  HMRC therefore maintained that the Appellant’s turnover should be shown as £25,200 rather than £24,000, but with an extra allowable expense of £2,000 to reflect the cost of the purchases he had made and recharged to the company.
7.	The Appellant provided no receipts or other evidence to support his claims for expenses.
8.	In both the tax years under appeal, the Appellant’s only source of income was the profits of his trade as a self-employed contractor.
9.	The Appellant informed HMRC during a telephone conversation on 29 April 2009 that he had been working on the Dungeness contract for some seven or eight years.  By reference to the amounts he was claiming for travel expenses, it is clear that he was working there full time for at least the two years ended 5 April 2008.
10.	HMRC notified what they considered to be appropriate amendments to the Appellant’s self-assessment tax returns for the two years in question by two closure notices dated 17 February 2010.
11.	In relation to 2006-07:
(1)	They disallowed the £4,160 related to petrol costs incurred on the weekly return trips between the Appellant’s home in Coventry and Dungeness Power Station in Kent (his workplace) on the basis that:
(a)	one of the purposes of these journeys was to enable the Appellant to live away from his workplace; and
(b)	it could not therefore be said that the expenditure was incurred wholly and exclusively for the purposes of his trade.
(2)	They disallowed the £4,800 of overnight bed and breakfast accommodation costs and the £4,800 of evening meal expenditure incurred when working at Dungeness on the basis that:
(a)	Any such expenditure would only be allowable if incurred in respect of overnight business trips away from the Appellant’s normal workplace; and
(b)	No such expenditure would be allowable if incurred at or near the Appellant’s normal workplace.
(3)	They disallowed the £450 claimed in respect of motor expenses because it also related the Appellant’s weekly trips between his home in Coventry and Dungeness; the basis of their argument was the same as set out in [11(1)] above.
12.	In relation to 2007-08:
(1)	They increased the Appellant’s turnover from £24,000 to £25,200 but allowed an extra deduction of £2,000 for the cost of materials supplied by the Appellant.
(2)	They reduced the credit claimed by the Appellant for tax withheld from payments made to him under the Construction Industry Scheme from £4,800 to £4,640.
(3)	They disallowed the £3,056 claimed for car, van and travel expenses on the basis that it appeared to refer to the Appellant’s weekly journeys between his home in Coventry and his workplace at Dungeness Power Station in Kent and should therefore be disallowed on the same basis as set out at [11(1)] above.
(4)	They disallowed the £9,600 of other business expenses claimed on the basis that it related to overnight bed and breakfast accommodation and evening meal costs whilst working away from home at Dungeness Power Station, on the same basis as set out at [11(2)] above.
13.	Following a review, these amendments were confirmed by a letter from HMRC to the Appellant dated 9 April 2010.
The Appeal
14.	The Appellant appealed against the two amendments.  In his notice of appeal, he said:
“I am an [sic] self employed contractor.  I spend time when not working on site away from home at business meetings in the evening, or on business matters in general at my home, which is also the registered office of the company I work for as a self employed contractor.
My work wholly and necessarily, by its nature, involves me travelling to site hundreds of miles away from home during the week; being transient and therefore unable to take permanent residence (including accommodation with cooking facilities) and involves me in business undertakings both of an evening as well as at home.  My work was unpredictable in nature.  My contracts were formed at home, all as per Horton v Young (1971) 47 TC 60.  It is utterly perverse to suggest that my expenses were anything other than a business cost.  There was no choice in the matter, no benefit I derived, other than the legitimate income I had after proper tax deducted.  HMRC initially agreed with this entirely.  However they seemed to think it was only reasonable to spend around £12.00 per day on food and overnight accommodation.  I beg to differ, and would ask you the same question: could you find somewhere to stay and something to eat every night, in the most expensive county in the country?  Would you travel 200 miles away from home and return of an evening?”
Analysis of applicable law
15.	The burden of proof lies on the Appellant to show, on a balance of probabilities, that the amendments to his self-assessments made by HMRC are wrong.  Unless he can discharge that burden, the appeal must fail and the amendments must stand.
16.	S 34 Income Tax (Trading and Other Income) Act 2005 provides as follows:
“34	Expenses not wholly and exclusively for trade and unconnected losses
(1)	In calculating the profits of a trade, no deduction is allowed for-
(a)	expenses not incurred wholly and exclusively for the purposes of the trade, or
(b)	losses not connected with or arising out of the trade.
(2)	If an expense is incurred for more than one purpose, this section does not prohibit a deduction for any identifiable part or identifiable proportion of the expense which is incurred wholly and exclusively for the purposes of the trade.” 
17.	Accordingly, the central question we need to decide is whether, in all the circumstances, the travel, accommodation and food expenses incurred by the Appellant were incurred “wholly and exclusively for the purposes of” his trade as a self-employed contractor.  If we find the Appellant is unable to satisfy this test, the second question arises, as to whether any identifiable part or proportion of the expenses can be regarded as satisfying the “wholly and exclusively” requirement.
18.	There have been a number of cases in which the “wholly or exclusively” issue has arisen in the context of self-employed tradesmen or professionals seeking to deduct the costs of travel between their homes and other locations where they carried on their businesses.  We were referred to four of them (one of which was slightly different, in that the claim was for costs of travel between two places of business, one of which was very close to the taxpayer’s home, rather than between the home and the place of business).  Whilst it is clear that none of these cases can provide principles which supersede the terms of the legislation, they do cast some light on the correct way to approach its interpretation.
19.	In three of the four cases, the argument of the taxpayer was that he had, to some extent or another, carried on his trade or profession at his home as well as at some other place, and therefore the expense of travel between the two locations ought to be allowed, on the basis that it was incurred wholly and exclusively for the purposes of the trade or profession.   These three cases were Newsom v Robertson [1952] 33 TC 45 (in which a barrister claimed for the cost of his travel to work at his chambers in London), Horton v Young [1971] 3 All ER 41 (in which a bricklayer claimed for the cost of his travel from home to work on various building sites) and Jackman v Powell [2004] EWHC 550 (Ch) (in which a milk delivery man claimed for the cost of travel from his home to the depot from which he carried out his milk deliveries).
20.	In the fourth case, Sargent v Barnes [1978] STC 322, the taxpayer (who was a dentist) quite clearly had two places of business apart from his home – though one of them (a dental laboratory) was only a short distance from his home.  He made a slight detour to call in at the laboratory when travelling each morning and evening between his home and his main dental surgery.  He then claimed to deduct the cost of travel between his laboratory and his dental surgery (which of course covered the majority of his travel between his home and his dental surgery).
21.	In Newsom, the barrister’s claim failed at the Court of Appeal.  The Court accepted that Mr Newsom carried on his profession in part at home in Bedfordshire and in part at his chambers in London.  But Somervell LJ agreed with the Special Commissioners’ argument that the Appellant’s travel from Bedfordshire to London and back had a dual purpose – the taxpayer wanted to “eat, sleep and pursue his domestic avocations” at home as well as carry out professional work.  Romer LJ declared:
“...it is almost impossible to suggest that when the Appellant travels to Whipsnade in the evenings, or at weekends, he does so for the purpose of enabling him ‘to carry on and earn profits in his’ profession let alone that he does so exclusively for that purpose.  That purpose, as I have said, could be fully achieved by his remaining the whole of the time in London.”  
Denning LJ said:
“That [i.e. the cost of travelling between Bedfordshire and London] is incurred because he lives at a distance from his base.  It is incurred for the purpose of living there and not for the purposes of his profession, or at any rate not wholly and exclusively; and this is so, whether he has a choice in the matter or not.  It is a living expense as distinct from a business expense.”
22.	In Horton v Young, the taxpayer succeeded before the Court of Appeal.  He lived at Eastbourne, and worked for a local builder as a self-employed bricklayer.  His customer (a main building contractor) would come round to his house to engage him for particular projects and agree his pay.  Then he would drive to wherever the building site was.  During the year in question, he worked on at least seven sites across the south east of England, between 5 and 55 miles from his home, for anything up to three weeks at a time.  He did not report to any central yard of his employer for work, and he kept his tools and books and records at home.  Denning LJ held that the “locus in quo” of the Appellant’s trade was his home, from which it radiated as a centre.  Accordingly, all his travel expenses should be allowable.  Salmon LJ held that the Appellant’s home was the “base” of his trade, and travelling from that base to the various building sites was an essential part of his trade.  Stamp LJ emphasised that the facts in these cases are “infinitely variable, and one must, in my judgment, look at the facts of each case..” In this case, he found that the taxpayer “had no place which you could call his place of business except his home”.  In those circumstances, he felt there was nothing to prevent the normal rule applying, i.e. that he should be allowed to deduct the cost of travel from “the place where he carries on his business as a sub-contractor to the several places at which he performs the contracts into which he enters”.
23.	In Jackman v Powell, the taxpayer lost before the High Court.  Lewison J reviewed the earlier authorities in considering the case of a self-employed milk roundsman.  The taxpayer lived 26 miles from the milk depot.  He had a franchise contract with the dairy under which he was allocated to a particular “round” of 35 roads.  He bought all his milk and other produce from the dairy and rented his milk float from them.  The taxpayer did his paperwork at his home address (including invoicing his own customers and dealing with his accounts).  Lewison J held that the taxpayer’s “base of operation” was “plainly” his round of 35 roads.  He accepted that the taxpayer “kept his books at home and did all his office work at home.  That is true, but that seems to me to be no different from many self-employed people who do their financial book work at home even though they carry on their business elsewhere.”  Accordingly, the taxpayer’s travel expenses from his home to the depot were not allowable as deductible expenses for the purposes of his trade.
24.	In Jackman v Powell, Lewison J also confirmed that “it is not in all cases necessary [to define the base of the trading operation], and it was only Denning LJ [in Newsom] who elevated that into a test.  The test remains the statutory test and, as Oliver J pointed out in Sargent v Barnes [1978] STC 322 at 328...:
‘The statute here lays down a test in express terms, and although analogies and examples may be useful guides the propounding of general propositions which involve the use of analogous, but not precisely equivalent, terms can lead to confusion.  In the ultimate analysis, the court has simply to look at the facts of the case before it and apply to those facts the statutory formula.’”
25.	In Sargent v Barnes, the taxpayer lost before the High Court.  Oliver J held that, given the nature of the visits to the dental laboratory (which were brief), realistically “what the taxpayer was doing, in my judgment, was calling to deliver and pick up work on his way to and from the surgery where the practice was carried on.”  As he went on to say: “the interruption of a journey, whether for five minutes or for a longer period, does not alter the quality of the journey although it may add to its utility.”  It was no surprise that he should then hold that:
 “the answer to that question [i.e. why did the taxpayer incur the expense of the petrol, oil, wear and tear and depreciation in relation to this particular journey] must be that it was incurred, if not exclusively then at least in part, for the purpose of enabling the taxpayer to get from his private residence to the surgery where his profession was carried on.  The fact that it served the purpose also of enabling him to stop at an intermediate point to carry out there an activity exclusively referable to the business cannot, as I think, convert a dual purpose into a single purpose.”  
26.	Oliver J went on to say that it would be a “travesty” to say that the taxpayer was in any relevant sense carrying on his practice as a dentist at the site of the laboratory.
27.	From the above cases we derive the following principles.
28.	First, the wording of the statutory provisions is paramount and each case must be decided on its own facts on the basis of the statutory provisions.  Although analogies and examples may be useful guides, they must not be allowed to obscure or override the statutory wording.
29.	Second, the cost of travel between a taxpayer’s home and any other place where he performs duties of the trade will generally be private expenditure and not “incurred wholly and exclusively for the purposes of the trade”, even if the taxpayer chooses to carry out some activity of the trade at his home.  This is because a desire to spend time at home will generally be at least part of the reason for making the journey.  This general presumption may however be displaced in appropriate circumstances – see the following paragraphs.
30.	Third, if the taxpayer’s home is found to be the “base from which he carries on his business” (per Horton v Young) or his “base of operation” (per Jackman v Powell), then it may be possible to establish that the costs of routine travel between his home and other places of work are deductible (if incurred wholly and exclusively for the purposes of the trade).
31.	Fourth, even if the taxpayer’s home is not the “base from which he carries on his business” or his “base of operation”, it is possible that travel may be required between a taxpayer’s home and some other place which is wholly and exclusively for the purposes of the taxpayer’s trade.  The statute would not necessarily preclude a deduction for the expenses of such travel simply because it starts or ends at the taxpayer’s home.  An example might be a service engineer whose customer calls him out at night from home instead of from his normal daytime place of work to perform emergency repairs.
32.	All the above cases were concerned solely with travel expenses.  There are other lines of authority concerned with the deductibility of the cost of food and accommodation as “standalone” items.  The general starting point of those cases is that food and accommodation are normal human requirements, irrespective of any business purpose; they have an intrinsic duality of purpose (business/private) and therefore no business deduction can be made for the cost of them.  However, HMRC accept that where a business trip necessitates one or more nights away from home, accommodation costs and associated reasonable meal and subsistence costs are deductible, on the basis that any private purpose is in such circumstances merely incidental to the predominant business purpose.  We agree with this analysis and therefore hold that the allowability of the accommodation and meal costs in this case should follow the allowability of the travel expenses.
Applying the law to the present case
33.	Can it be said that the Appellant’s travel in both the years under appeal was undertaken (and the associated travelling, overnight accommodation and meal expenses were therefore incurred) wholly and exclusively for the purposes of his trade?  
34.	It is clear that the travel was between the Appellant’s home in the Midlands and the place in Dungeness where he carried out the work for his customer.  As such, our first impression is that the travel was at least partly for private purposes.
35.	We take the Appellant to be arguing that this first impression is incorrect because the base from which he carried on his business (or his base of operation) was his home, so that travel between that base and Dungeness should be allowable on normal principles.
36.	We accept that the Appellant may well have carried out some administrative work in relation to his business while he was at home over the weekends.  But as a matter of fact, he derived all his income for the two years in question from his work in Dungeness, he spent four nights of every working week there and his assertion that he spent time “on business matters in general at my home” was vague and unsupported by evidence.  In any event, given the full-time nature of his commitment to work on site in Dungeness, we do not consider that his activities at home at the weekends on business matters could have been material in extent.  
37.	The Appellant had also stated (in his letter to HMRC dated 3 March 2010) that he was “fortunate to win contracts by bidding for them on a daily basis and for that reason it was impossible to move to Kent on a permanent basis as I might not have any work the next day”; from this we infer that much of his bidding and negotiating for contracts was carried out in Kent rather than at his home in the Midlands (notwithstanding his assertion in his notice of appeal that “my contracts were formed at home, all as per Horton v Young”).
38.	There are some clear differences between this Appellant and the bricklayer in Horton v Young.  The most striking of those is what Lewison J referred to as the lack of “predictability about Mr Horton’s places of work when he was employed on a bricklaying subcontract.  He would have to go wherever Mr Page’s main contracts took him.”  There is a clear contrast between that situation and this Appellant’s full time working in one place for a period of years, however precarious he maintains his position to have been on a day to day basis.
39.	On the basis of the above facts, we find that the Appellant’s travel expenses were incurred at least in part by reason of his wish to remain living at home in the Midlands.  We find that his base of operations (or the base from which he carried on his business) was at Dungeness and not at his home.  We therefore reject any argument that the private purpose element of the travel can be disregarded as being incidental to a main business purpose (of travelling between his base and a worksite).  
40.	We could not discern any other basis on which the Appellant was arguing that the travel expenses were incurred wholly and exclusively for the purposes of his trade.
41.	It follows that we consider he did not incur the expenses of travel between his home and Dungeness “wholly and exclusively for the purposes of the trade”.  Nor was there any argument or evidence before us that “any identifiable part or identifiable proportion” of the expenses (as opposed to the whole of them) was so incurred.  We therefore hold that the statutory test in s 34 ITTOIA 2005 is failed and the travel expenses may not be deducted for tax purposes in computing the profits of the Appellant’s trade in the two years in question.  
42.	As set out above, the tax treatment of the accommodation and meal expenses follows that of the travel expenses.  
43.	It follows that the appeal must fail insofar as it relates to the travel, accommodation and meal expenses.
44.	No evidence was put before us to support the claiming of the £450 of motoring expenses as a valid business expense in 2006-07 and therefore we must also agree with HMRC’s disallowance of those expenses.
45.	In relation to the 2007-08 tax year, the Appellant also maintained that HMRC’s amendment to his reported turnover (upwards by £1,200) and their adjustment to his expenses (upward by £2,000) was wrong; however no evidence was brought forward to support his position, and we observe that the net effect of these two adjustments was to reduce the Appellant’s taxable profit by £800.  We therefore agree with these aspects of HMRC’s 2007-08 amendment.  
46.	In addition, the Appellant had taken credit in his 2007-08 return for £4,800 of tax deductions under the CIS from payments made to him by the company.  HMRC had amended his self-assessment return in line with the CIS monthly returns made by the company, so give credit only for £4,640 of CIS deductions.  Again, the Appellant did not bring forward evidence (for example, in the form of copies of the certificates issued to him totalling the higher amount) to support his case and therefore we also accept this aspect of HMRC’s amendment to his return.  
Conclusion
47.	It follows that we find in favour of HMRC on all aspects of the appeal, which must therefore be dismissed in full.
48.	This document contains full findings of fact and reasons for the decision. Any party dissatisfied with this decision has a right to apply for permission to appeal against it pursuant to Rule 39 of the Tribunal Procedure (First-tier Tribunal) (Tax Chamber) Rules 2009.   The application must be received by this Tribunal not later than 56 days after this decision is sent to that party.  The parties are referred to “Guidance to accompany a Decision from the First-tier Tribunal (Tax Chamber)” which accompanies and forms part of this decision notice.

KEVIN POOLE
TRIBUNAL JUDGE
RELEASE DATE: 28 MARCH 2011