SJ Bennett v Revenue & Customs [2006] UKSPC SPC00576 (28 December 2006)

SPC00576

INCOME TAX – Schedule E – whether expenses incurred by employee scaffolder in respect of temporary accommodation, subsistence, travelling from temporary accommodation to construction sites, and mobile phone costs allowable – no – appeal dismissed. 

INCOME TAX – Schedule D - whether expenses incurred in respect of temporary accommodation, subsistence and travelling from temporary accommodation to construction sites deductible expenses in computing profits of self-employed scaffolder – no, except in relation to travelling expenses – appeal dismissed except in relation to travelling expenses

 INCOME TAX – employer acting on instruction of Inland Revenue failed to deduct tax activity due under PAYE – whether employee liable for tax due – no – appeal allowed by consent. 

SPECIAL COMMISSIONERS OF INCOME TAX

	Appellant
S J  BENNETT

- and -

THE COMMISSIONERS FOR HER
MAJESTY’S REVENUE AND CUSTOMS	Respondents

                                         Special Commissioner:   David Demack	 
Sitting in public in Manchester on 17 August 2006

The Appellant did not appear and was not represented. 

Mr Warren Mitchell of HMRC for the Respondents.

© CROWN COPYRIGHT 2006

DECISION

Introduction

1.	The appellant, Mr S J Bennett, appeals against notices issued by Her Majesty’s Commissioners for Revenue and Customs (“HMRC”) on 30 September 2004 under section 28A (1) and (2) of the Taxes Management Act 1970 (“TMA”) in respect of enquiries made under Section 9A of the TMA for the two years of assessment ended on 5 April 2002 and 5 April 2003.  The notice in respect of the earlier year shows £1,445.16 tax due, and that for the later year £3,206.06 tax due.  In each case, the figure includes National Insurance contributions. 

2.	The appeal raises three issues, namely; 
1)	whether expenditure claimed by Mr Bennett on the following items during periods of employment qualified for deduction under section 198 of the Income and Corporation Taxes Act 1988 (“ICTA”):
(a)	travelling expenses;
(b)	subsistence costs; 
(c)	accommodation costs; and 
(d)	mobile phone costs.
2)	whether in computing his profits for a period of self-employment in the year to 5 April 2002, Mr Bennett was entitled to a deduction under section 74 of ICTA in respect of expenditure on: 
(a)	accommodation; 
(b)	travel; and 
(c)	subsistence.
3)	whether in the year to 5 April 2003, Mr Bennett was assessable to tax under Schedule E in respect of additional earnings of £1,175.

3.	It is convenient to deal at this juncture with one aspect of the second issue and with the third issue.  Taking the third issue first, Mr Bennett declared earnings of £1,175 for a short period of time in 2001/02 when he was employed by No.1 Scaffolding Services Ltd.  That company was instructed by HMRC to operate tax code  438L on a cumulative basis, which resulted in it deducting no tax from Mr Bennett’s earnings.  HMRC accept that the allocation of that code number was an administrative error on their part, and that tax on Mr Bennett’s earnings should have been deducted by his employer.  They further accept that liability for PAYE is that of the employer, so that an employee is entitled to a credit therefor in his self-assessment, even if the tax is not paid by the employer.  In the circumstances, HMRC agree that Mr Bennett is entitled to a tax credit of £258.50, and to that extent his appeal must be allowed.

4.   	The aspect of the second issue with which I can also deal concerns a claim by Mr Bennett for an allowance for travelling expenses incurred in 2001 during a period of self-employment.  Although HMRC’s presenting officer, Mr W Mitchell, did not necessarily accept that the deduction was due, since the Inspector of Taxes concerned had conceded the issue by letter of 2 September 2003, he, Mr Mitchell, considered HMRC bound to allow the deduction.  The allowance claimed amounts to £351, and by consent to the extent of tax on that amount I further allow the appeal.

5. 	When the appeal was called on for hearing neither Mr Bennett, nor Mr J V Barton FCA, who had acted for him during the enquiries, appeared.  Nor was I presented with any documentary evidence by Mr Bennett, so that I must necessarily rely on HMRC’s bundle of copy documentation, that being the only evidence before me.  On the application of Mr Mitchell, I determined to proceed in Mr Bennett’s absence. 

The Facts

6 	I find the following facts to have been established.  Mr Bennett is a scaffolder, and resides in Preston, Lancashire.  From 6 April 2001 to 14 May 2001, and from 8 October 2001 to 14 November 2001, he was employed by O’Rourke Civil Structuring Engineering Ltd (“O’Rourke”), and from 15 November 2001 to 5 April 2003 by Universal Building Supply Ltd (“Universal”).  Between 15 May 2001 and 5 October 2001, he was self-employed.  During both periods of employment and self-employment, Mr Bennett worked on various construction sites in the London area and on the weekdays of each week of such employment occupied temporary accommodation at the County Arms Public House, New Kent Road, London. 

7.	For the periods during which Mr Bennett was employed by O’Rourke and Universal, Mr Barton prepared and submitted the following expenses claims for him: 
“Expenses in Employment [Box 1.32 – Travel and Subsistence] year to 
5 /04/2002 tax return.
 (i) O’Rourke. (6/4/01 to 14/5/01 and 8/10/01 to 14/11/01)	 £	
(a)  Travelling Expenses: 40 miles per day x 5 days  =        200 miles per week x 11 weeks = 2,200 miles @ 45p 	990	
		
(b)  Meals £10 per day x 5 days = £50 per week x 11 weeks 	550	
 (c) Accommodation £10 per night x 5 days = £50 per week  x 11 wks	550	
	          2,090	
 (ii) Universal  (15/11/01 to January 2002)		
(a)  Travelling Expenses 40 miles per day x 5 days =         200 miles per week x 8 weeks = 1,600 miles @ 45p =	720	
(b)  Meals £10 per day x 5 days = £50 per week x 8 weeks 	400	
 (c) Accommodation £10 per night x 5 days = £50 per week x 8 weeks 	400	
	1,520	

NB:  “travelling expenses” relates to travelling to and from a temporary workplace”.

Expenses in Employment (year to 5/4/2001)		
(employed by Universal)	Per week	
	     £	
(a)  Travelling Expenses	 106.80	
(b)  Meals 	110.00	
(c)  Accommodation 	  80.00	
(d)  Mobile Phone 	   20.00	
	316.80	
		
Total Expenses  - £316.80 per week x 46 weeks = 	£14,572.80	

NB:  Travelling Expenses relates to travelling to and from a temporary workplace”.

8.        No vouchers or receipts were produced to support the various claims, nor was any further information provided to indicate the basis on which Mr Barton had calculated the different amounts claimed. 

9.	For the period during which Mr Bennett was self-employed in 2001/02, i.e. from 15 May 2001 to 5 October 2001, Mr Barton submitted the following expenses claims for him: 	
	£	
“Accommodation costs 	900	
Subsistence (“Food Allowance”)	900	
Travelling Expenses 	351	
Accountancy Charges 	350  2,501”	
									
10.       Again, with the exception of the accountancy charges, no vouchers or receipts were produced to support the claims, nor was any further information provided to show how the amounts claimed were calculated.

11.       But as HMRC have conceded Mr Bennett’s claims for travelling expenses and accountancy charges in the period of self-employment, I am concerned only with his accommodation costs and “subsistence (food allowance)”.   

The legislative framework

12.      In deciding whether Mr Bennett is entitled to the deductions claimed for his periods of employment, I must consider section 198 of ICTA, as rewritten in 1998 and in force until 5 April 2003.   In that form, the relevant parts of it provided as follows: 

“198.  Relief for necessary expenses
(1)	If the holder of an office or employment is obliged to incur and defray out of the emoluments of the office or employment -
(a)	qualifying travelling expenses, or 
(b)	any amount (other than qualifying travelling expenses) expended wholly, exclusively and necessarily in the performance of the duties of the office or employment, 
there may be deducted from the emoluments to be assessed the amount so incurred and defrayed.

(1A)	“Qualifying travelling expenses” means – 
(a)	amounts necessarily expended on travelling in the performance of the duties of the office or employment, or 
(b)	 other expenses of travelling which –
(i)	    are attributable to the necessary attendance at any place of the holder of the office or employment in the performance of the duties of the office or employment, and
(ii)  are not expenses of ordinary commuting or private travel.
What is ordinary commuting or private travel for this purpose is defined in Schedule 12A”. 

13.      Section 12A provided as follows: 

ORDINARY COMMUTING  AND PRIVATE TRAVEL

Introduction

1- (1)	The provisions of this Schedule apply for the purposes of Section 198(1A)(b)   (ii) (qualifying travelling expenses: exclusion of ordinary commuting and private         travel)
 (2). In this Schedule “employment” includes an office and “employee” includes an office-holder.
Ordinary commuting and private travel

 2-(1)    “Ordinary commuting means travel between -
(a)	the employee’s home or 
(b)	a place that is not a workplace in relation to the employment, 
  and a place which is a permanent workplace in relation to the employment. 
    (2 )    “Private Travel” means travel between –
(a) the employee’s home and a place that is not a workplace in relation to the employment, or 
(b) between two places neither of which is a workplace in relation to the employment.
(2)	In sub-paragraphs (1)(b) and (2) “workplace” means a place at which the employee’s attendance is necessary in the performance of the duties of the employment. 

3.   Travel between any two places that is for practical purposes substantially ordinary commuting or private travel is treated as ordinary commuting or private travel. 

Permanent and temporary workplaces

4. For the purposes of paragraph 2, subject to the following provisions of this Schedule - 
“permanent workplace” means a place which the employee regularly    attends in the performance of the duties for the employment and which is not a temporary workplace; and “temporary workplace” means a place which the employee attends in the performance of the duties of the employment for the purpose of performing a task of limited duration or for some other temporary purpose. 

The 24 month rule and fixed term appointments 

5. (1)	A place is not regarded as a temporary workplace if the employee’s attendance is in the course of a period of continuous work at that place – 
(a)	lasting more than 24 months, or 
(b)	comprising all or almost all of the period for which the employee is likely to hold the employment, 
or if the employee’s attendance is at a time when it is reasonable to assume that it will be in the course of such a period. 
(2)   A “period of continuous work” at a place means a period over which, looking at the whole period and considering all the duties of the employment, the duties of the employment fall to be performed to a significant extent at that place. 
(3)	An actual or contemplated modification of the place at which the duties of the employment fall to be performed is disregarded for the purposes of this paragraph if it does not have, or would not have, any substantial effect on the employee’s journey, or expenses of travelling, to and from the place where the duties fall to be performed. 
14.       In the two years of assessment concerned, section 74 of ICTA dealt with the right of a taxpayer to deduct expenses in computing taxable profits. In so far as relevant to Mr Bennett’s appeal, it provided: 

“(1) Subject to the provisions of the Tax Acts, in computing the amount of the profits to be charged under Case I or Case II of Schedule D no sum shall be deducted in respect of: 
(a)	any disbursement or expenses, not being money wholly and exclusively laid out  or expected for the purposes of the trade, profession or vacation; 
(b)	any disbursements or expenses of maintenance of the parties, their families or establishments, or any sums expended for any other domestic or private purposes distinct from the purposes of the trade, profession or vocation;”

Submissions and Conclusion

15.      Mr Mitchell observed that prior to 6 April 1998 the only travelling expenses allowable to employees were those incurred in the performance of the duties of the employment, but that in April 1998 the rules were extended to include relief for qualifying travelling expenses.  He submitted that the travelling expenses claimed by Mr Bennett were those of ordinary commuting, and thus not allowable.  The expenses claimed were not those of travelling between Preston and London, but those of travelling between Mr Bennett’s accommodation address in London and the sites at which he worked; they merely put him in a position to carry out his duties. The costs incurred could not be deducted; the expenditure was not incurred “in the performance of the duties of the office of employment” as required by section 198 of ICTA.  

16.	In Ricketts v Colquhoun 10 TC 188, a barrister who lived in London held the office of recorder of Portsmouth.  He sought to deduct from his emoluments for income tax purposes the expenses of travel between London and Portsmouth and the cost of accommodation whilst staying in Portsmouth, claiming that he was necessarily obliged to incur the travelling expenses and to have wholly, exclusively and necessarily incurred the accommodation costs.  The House of Lords held that he could deduct neither, Viscount Cave LC observing that the expenses in question satisfied neither of the tests to be applied.  In the case of the travelling expenses, Viscount Cave considered them to have been incurred because, living and practising away from Portsmouth, Mr Ricketts had to travel there before he could begin to perform his duties as recorder and, having performed the duties, to return home: the expenses were incurred partly before he entered upon his duties, and partly after he had fulfilled them.  

17.    The principle so enunciated by Viscount Cave was, in Mr Mitchell’s submission, equally applicable to Mr Bennett’s case: he was not obliged to incur the travelling expenses. 

18.    As mentioned above, the deduction for travel expenses which Mr Bennett sought related only to travel between his accommodation address and his place or places of work.   Mr Mitchell asserted that the accommodation address was “a place that is not a workplace in relation to the employment”, relying for the purpose on paragraph 2 (3) of Schedule 12A to ICTA where ““workplace” means a place at which the employee’s attendance is necessary in the performance of the duties of the employment”.  
The places to which Mr Bennett travelled were “a permanent workplace in relation to the employment”, and thus in Mr Mitchell’s submission, his travelling was “ordinary commuting” as defined in Schedule 12A, and not allowable. 

19.    Of a claim made in correspondence by Mr Barton on behalf of Mr Bennett that the sites at which the latter worked were temporary sites, so that expenditure incurred in travelling to them from the accommodation address was allowable, Mr Mitchell accepted that paragraph 4 of Schedule 12A defined a temporary workplace, and indicated that if the places of work were temporary, expenditure incurred in travelling to them was not “ordinary commuting” and was not excluded from “qualifying travelling expenses”; but, in reliance on paragraph 5 of Schedule 12A, he submitted that they were not temporary workplaces in Mr Bennett’s case.  Mr Mitchell added that some workplaces or sites at which Mr Bennett had worked had been identified in relation to the tax year 2001/02, but none had been disclosed for 2002/03.  In any event, Mr Mitchell added, HMRC had insufficient information to enable them to accept that Mr Bennett’s places of work had been temporary, but even had they had, he submitted that the claim must be disallowed because there was no change in the travelling expenses incurred by Mr Bennett, and thus there was no “substantial effect on the employee’s journey or expenses of travelling to and from the place where the duties fall to be performed”. (see paragraph 5(2) of Schedule 12A).  

20.   In relation to Mr Bennett’s claim for subsistence costs and accommodation expenses, Mr Mitchell accepted that travel expenses included the actual cost of travel and also the subsistence and other associated costs incurred as part of the total costs of making the journey.  Thus the costs of business travel included the costs of any necessary subsistence attributable to the journey, including overnight accommodation and any necessary meals.  Mr Mitchell submitted that in Mr Bennett’s case, as his claim for travel expenses was not allowable as relating to commuting, neither for the same reason were his subsistence and accommodation expenses claims.  Further Mr Bennett had supplied no evidence of his having incurred the expenses claimed. 
As Vinelott J held at p.657 of his judgment in Elderkin (HM Inspector of Taxes), Hindmarsh 60 TC 651, it was  

”expenditure which he had to incur if he was to put himself in a position to do the work which he was employed to do and for which he was paid….”.   

21.      Mr Mitchell observed that Mr Bennett had provided HMRC with no evidence to support his claim for mobile phone costs, which in any event was in round sums; and there appeared to be no reason why a scaffolder would be required to spend £20 per week on such costs.  He submitted that the deduction was not due:  Mr Bennett had neither shown that he had incurred the expenditure claimed, nor that it had been incurred in the performance of his duties. 

22.        Further, Mr Bennett had supplied no evidence to show that he had incurred the expenses claimed.   In any event, Ricketts v Colquhoun, suggested a duality of purpose to the expenses: Mr Bennett needed to live somewhere and to eat to live, so that the deduction for subsistence and accommodation was, in Mr Mitchell’s submission, not due. The rules applicable to Schedule E allowed the deduction of money, other than travelling expenses, expended “wholly, exclusively and necessarily” in the performance of the duties concerned so that Viscount Cave held those words to be confined to expenses incurred in the performance of the duties of the office, and which were wholly, exclusively and necessarily so incurred.

23.         In relation to Mr Bennett’s claim to be entitled to deduct accommodation and subsistence expenses from his profit while he was self-employed, Mr Mitchell noted that again the sums claimed were in round figures and unsupported by evidence that the expenditure had been incurred.  Further, he submitted that the analogous case of Prior v Saunders 66 TC 210 suggested that a deduction for the expenditure claimed was not due.  In that case it was held that a self-employed ceiling fixer who worked mainly in the London area and who claimed, inter alia, deductions in respect of subsistence expenses, was not entitled to do so, for money he spent on food was not wholly expended for the purposes of trade within section 74 (a) of ICTA: there was an inherent duality of purpose to the expense. 

24.        I am satisfied that all the submissions of Mr Mitchell are correct, and, with the exception of the matters set out at paragraphs 3 and 4 of my decision, I confirm the assessments and dismiss Mr Bennett’s appeal.  I direct HMRC to recalculate the tax and NIC contributions due and to notify Mr Bennett of them. 

					D. Demack
CHAIRMAN
Release Date 28 December 2006

SC/3384/2005