Gabelle Tax Analysis: Benidorm star extends meaning of ‘wholly and exclusively’

The First-tier Tribunal – in Tim Healy TC01940, published on 20 April 2012 – has allowed a deduction for rent paid on a London property. The expenditure was ruled to be allowable in full on the basis that it was incurred ‘wholly and exclusively’ in connection with Tim Healy’s (TH) profession of being an actor. It was also held that there was no duality of purpose. This is a significant decision. Up until now it has been thought that rent paid in relation to accommodation is not an allowable deduction for trading income purposes as it is not wholly and exclusively for a trade. This decision extends the scope of claiming deductions to include living accommodation for self-employed individuals in certain circumstances.

TH, famed for shows such as Auf Wiedersehn Pet, Coronation Street and more recently Benidorm, rented a riverside apartment in Pimlico, London on a 52 week contract while he was starring in the hit musical Billy Elliot. He claimed a deduction of £32,503 in respect of the rent. HMRC rejected this claim and an appeal was made to the First-tier Tribunal.

By way of background, the general rule is that living accommodation is not an allowable deduction when calculating the purposes of trading income as it is not ‘wholly and exclusively’ incurred for the purpose of a trade. There is a duality of purpose, namely the business purpose and the non-business purpose of ‘satisfying ordinary human needs.’ An exception may, however, be made for itinerant workers, where a business trip necessitates one or more nights away from home, such as hotel costs for attending a conference.

TH argued that he was an itinerant worker who worked in variety of locations throughout the country, albeit that most of his income was earned in London while starring in the musical Billy Elliot and doing ‘voice-over’ work. TH argued that he did not move to London. His base remained in Cheshire, where he owned a house occupied by his wife, Loose Women presenter and Celebrity Big Brother winner, Denise Welch. Correspondence from his agents was sent to his Cheshire address, whilst correspondence from his accountant, HMRC and banks was sent to a third address in Northumberland. TH decided to stay in an apartment rather than a hotel because it was cheaper and offered better security.

HMRC did not accept that TH was an itinerant worker during the twelve month period he was performing in Billy Elliot. They argued that he moved to London as his base for that period. There was therefore a duality of purpose in renting the accommodation.

The Tribunal held that the rent paid in relation to the accommodation was wholly and exclusively in connection with his profession as an actor and there was no duality of purpose. Although the judge did not specifically refer to the term ‘itinerant worker’, the implication is that the rental expenses were wholly allowable because TH did not make London his base. Reference was made to the lack of stability in working with the Billy Elliot production company and that TH’s contract with them could be terminated with two weeks notice if the production was due to close. Although it was acknowledged that TH could have traveled home to Cheshire every night after the performances, this was not a feasible option as there was a risk that his performance would have suffered as a result.

Future claims for deductions which are wholly and exclusively for the purposes of a trade will turn on their facts. Nevertheless this decision provides a useful indication of the approach a future tribunal would take. It is fair to say that the bar has been lowered because the facts in this case are not wholly dissimilar to those in the case of Prior v Saunders [1993] 66TC210, where a self-employed ceiling fixer living in Bournemouth but working in London was denied a deduction for rents paid in relation to the London accommodation.

Priya Dutta is a Senior Tax Consultant at Gabelle LLP. She can be contacted at priya.dutta@gabelletax.com or via TaxDesk on 0845 4900 509.