An upper tier tribunal has ruled in favour of HMRC in a long-running case concerning the tax deductibility of business travel expenses.
The appeal was brought by Dr Samad Samadian, and his defeat will have a wider impact on self-employed individuals, according to Abbey Tax consultant Guy Smith.
Last year Samadian lost a first tier tribunal against HMRC's assessment that his business mileage claims to and from his home office and a private hospital were not wholly and exclusively allowable expenditure.
The first tier tribunal noted that the consultant geriatrician had a dedicated home office, but did not accept that this office was a starting point for calculating private practice business mileage for habitual journeys.
At the upper tier tribunal this month, Samadian argued that he should be able to reclaim travel expenses for journeys between NHS and private hospitals, and between his home and private hospitals as they are, in his view, incurred wholly and exclusively for the purposes of his private practice.
In Samadian v HMRC [FTC/53/2013] the tribunal noted that the consultant works full-time in the NHS at certain hospitals, but also has a private practice as a self-employed medical practitioner. It also looked into his home office arrangement and consulting rooms he hires at two private hospitals to see patients. In addition, he also occasionally conducts home visits.
Samadian travels via car between these locations and to and from the NHS hospitals. He has an agreement in place with HMRC as to whether the expenses of particular journeys are or aren’t deductible as expenses wholly and exlusively for the purposes of private practice.
In spite of this arrangement, some disagreements still remained: HMRC resisted his claim that travel between NHS and private hospitals was deductible.
The upper tribunal found that Samadian's home office was necessary to perform his work, but because there was a pattern of “regular and predictable attendance” at other locations - the private hospitals, for instance - they were places of business.
The tribunal dismissed his appeal, saying that the first tier tribunal’s decision was “correct in all its essentials” and that the categories applied for treating travel expenses as deductible or non-deductible would attract broad public acceptance.
In short, it ruled that while the home office can be recognised as a place of business and a use of home claim allowed, the travel from that place of business in the home will not necessarily be allowable, unless it is in pursuit of an ‘itinerant’ business journey.
Travel expenses for journeys between places of business for purely business purposes are treated as deductible.
Travel expenses for journeys between home (even where the home is used as place of business) and places of business are treated as non-deductible (other than in very exceptional circumstances)
Travel expenses for journeys between a location which is not a place of business and a location which is a place of business are not deductible
Guy Smith said that the decision was "not entirely unexpected" and speculated about how HMRC would seek to enforce the ruling.
He warned of a "ripple effect" in a number of areas, not least that of compliance work done by accountants in terms of mileage logs: "Accountants need to stress to clients that they need to keep detailed mileage logs to come up with something that will really stand up in the accounts. With the work the Revenue has been doing with agents who deal a lot with sub-contractors, HMRC has been stepping up their focus on mileage logs, asking, 'did you test the journeys? Compare them to sales invoices?'
"There are lots of cases waiting on the decision about whether home can be classes as a business base or not. This tribunal is not just about mileage however - it's about the purpose of the travel.
"What it's going to boil down to is the definition between itinerant and habitual. At what point does it swap? The ruling seems to be saying we now have to look at every single journey made and judge whether it's itinerant or habitual."