Julie Cameron examines a failure to obtain deductions for unsubstantiated costs of cleaning employee clothing, which were based on HMRC’s self assessment guidance.
In the case of Higginbottom, Critchley and Lyons, (TC06521) the three taxpayers each claimed £2,200 a year in respect of costs of cleaning and sanitising work clothes and toiletries for personal hygiene. They were appealing against PAYE coding notices, as each taxpayer was outside self-assessment. The case also dealt with coded underpayments of tax for earlier years brought about by a reduction in such expenses.
In each case, the quantum claimed had been estimated with the help of the adviser, Dr J D Banks, who does not claim to be an accountant.
A deduction is available for expenses paid by employees which are ‘incurred wholly, exclusively and necessarily in the performance of the duties of the employment’.There is also provision for a fixed rate deduction agreed by HM Treasury, to represent average annual expenses for ‘repair and maintenance of work equipment’, that HMRC says includes special work clothing, which has been set at £60 per year since 2008/09.
The FTT noted that Banks had suggested the claims be limited to £2,200, as this was purported to be the level above which the taxpayers would have been obliged to register for self assessment. Indeed, higher claims in earlier years had been reduced: Higginbottom and Critchley had claimed £3,240 in 2013/14 (not the subject of the appeal) but been advised by Banks to reduce their claims to £2,200.
All three employees worked in industries requiring protective clothing. Higginbottom and Lyons worked in the drainage and sewerage industry. Critchley’s role as an environmental worker on grounds maintenance included cutting back overgrown areas and spraying weeds. For each of the three, it was claimed that there was potential exposure to such nasties as faeces, rodents and diseases such as Leptospirosis and Hepatitis B.
Protective clothing had been provided to Higginbottom and Critchley by their employers. Critchley’s employer provided no washing facilities and those available to Higginbottom were at the company’s depot, some 30 miles away from his home. It was contended that the appellants were obliged to do their very frequent work laundry using their own domestic facilities.
The claims were said to be based on estimated costs of cleaning the work clothes, covering household washing powder, fabric conditioner and disinfectant, a proportion of utility bills and an amount for appliance wear and tear. In addition the taxpayers claimed for items such as shower gel and shampoo for their own personal hygiene.
No meaningful receipts
Although the FTT accepted that cleaning costs had been incurred, they noted that there was no supporting evidence for the claimed weekly costs of detergent and toiletries. The taxpayers could not provide ‘meaningful receipts’ because the products had been purchased as part of the regular household supermarket shop. The point was made that items used for work clothes cleaning could have been bought and used separately and till receipts retained as evidence of expenditure solely in respect of the protective clothing.
Furthermore, the FTT considered the estimate of costs of running a washing machine and tumble dryer were unreliable, comparative estimated costs of visiting a launderette as guesswork and, in the case of Higginbottom, the cost of notionally employing someone on the minimum wage for an hour a day to do the washing, irrelevant.
The lack of cogent evidence meant the FTT could not make any findings on the actual amounts incurred.
The FTT had to be satisfied that the tests for employment expenses had been met, that costs were incurred wholly, exclusively and necessarily in the performance of the taxpayers’ duties of employment. It acknowledged that the tests would be satisfied on cleaning protective and other clothing provided by an employer which the employee was required to wear. Lyons had not provided any such evidence.
Higginbottom and Critchley had done so, but their other ‘ordinary clothing’ had not been provided by the employer. The FTT considered there was no entitlement to relief for the cost of cleaning ordinary work clothes – as this cost only applies for uniforms and protective clothing.
Finally, the FTT found the expenditure for toiletries had been incurred partly for the purpose of everyday personal hygiene. It therefore did not qualify as incurred wholly and exclusively in the performance of the duties of the employment.
Arbitrary limits and round sum claims
In concluding that the taxpayers were entitled to nothing above the flat rate deduction of £60 per year, the FTT remarked that this sum might be seen as ‘somewhat out of date’, having not been increased since 2008/09. The FTT also made the point that it was open to the taxpayer to claim an increased amount by reference to actual costs incurred, which had to be evidenced.
This is not the only arbitrary figure involved in this case. Banks had seemingly advised the round sum annual claim of £2,200 by reference to HMRC’s guidance on self-assessment limits.
A similar claim was refused in 2016, in another coding notice appeal: Mulheran (TC05532), in which the taxpayer was advised by Banks. In this case, expenses of up to £2,880 had stood because HMRC’s enquiry notices had been issued out of time. The subsequent year’s claim was reduced to £60 (HMRC’s flat rate amount) and the matter left until the 2016/17 coding was issued, when the claim was upped to £2,200. That figure again.
In the gov.uk guidance on who must submit a tax return, this de-minimis sum has increased to £2,500. An affirmative answer to the question: ‘did you claim employment-related expenses of more than £2,500?’ will point the taxpayer towards the tax return filing requirement.
Does this encourage the unrepresented taxpayer, to whom such guidance is directed, to assume that a claim of up to £2,500 can be made without substantiation? In which case, it is surely misleading. Tax professionals will know that the narrow road to successful employee expense claims is paved with unsuccessful appeals.
It is worrying that HMRC’s guidance might be adopted as a hook on which to hang unsubstantiated claims potentially leading to tax refunds made on behalf of clients. The FTT decision firmly reiterates the need for a reasoned claim based on actual evidence of expenditure and not a bucket approach to replacing HMRC’s flat rate amount.
About Julie Cameron
Freelance chartered tax adviser and writer focussing on private client and tax adminsitration for individuals, I also volunteer for Bridge the Gap.