Contractor’s home to hotel travel disallowed
A Scottish contractor, who lodged in Swindon to be available for work in the south of England, had his travel and accommodation expenses disallowed as not wholly and exclusively incurred for his business.
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This decision is absolute nonsense, although I understand the thinking behind it. Had work not been obtained in Swindon then those expenses would not have been incurred so they have been incurred wholly and exclusive for the business. You don't need previous court decisions that didn't relate to this case to show that. I do hope that this case goes further.
I don't know that I agree with John Jenkins. It is difficult not to sympathise with HMRC as Taylor was effectively establishing a living space in Swindon rather like the MP's flat in town (different set orf rules for them of course,)
These questions are never easy but I think, in this case, HMRC were right.
I do understand HMRC point, but the overriding factor is surely that if there wasn't any work in Swindon then there wouldn't be any expenses. Therefore the wholly and exclusive rule is right. From what I gather the only expenses claimed were those that enabled him to work. This is a bad decision and needs to be taken further.
I see what you're getting at John but in this case there was a duality of purpose. He turned it into a home. Hence, it was not exclusively for the purposes of the trade.
Had he moved his family there I would agree. However this is a temporary work accommodation and as such is "wholly and exclusively" for work. No other reason.
The last paragraph under Comment is the most important part of this article for contractors and their accountants. HMRC conceded that travel and accommodation would have been deductible had it been a specific contract.
Hamish Taylor's mistake was to turn his digs into a home from home. He should have gone home after each individual contract, spaced them apart and kept his forays south shorter and much less frequent.
An even better solution would have been to work through a company and take advantage of the temporary workplace rules for employees. Again, he would have had to avoid turning Swindon into a home from home (HMRC specifically disallow pied-a-terres in Booklet 480) but he wouldn't have had to rely on Horton v Young or any other cases relevant to the self-employed.
There you have it. If he done this or if he had done that. You cannot get away from the fact that the temporary accommodation was expended in order to do work, wholly and exclusively. Had Hamish moved his family in then I would agree with the decision. As I said I do hope this case goes further. It is not up to HMRC to adapt "wholly and exclusively" to their own interpretation.
Glad I don't haver a contractor clients - trying to explain the subtle differences under the W&E test is nigh on impossible.
There are several issues here. The first is that the Scottish contractor had been selected for a HMRC enquiry. By inference of the article, there is nothing demonstrably incorrect with the record keeping and income returned ; consequently the HMRC accounts investigator has gone for 'add backs'. There's nothing worse from a Revenue investigation perspective than coming away with no brownie points.
Whether right or wrong on the expenses disallowance which I'll come to soon, HMRC has also gone for penalties. Again another box ticker in the promotion ladder stakes . But good to see that the FTT [at least] decided that penal consequences were not appropriate. Sadly there are no statistics to reveal how many innocent taxpayers have been wrongly penalised by over zealous HMRC officers attempting to justify their existence by getting the monies in at whatever tactics. Well done Melrose Man for pursuing the matter.
Lucy concludes her article by referring to HMRC's internal guidelines at EIM para 31800. These are by definition - guidelines - and by fact , relating to Employment income. Melrose man is of course a self employed individual. HMRC tend to include 'NECESSARY' when it suits.
Sorry for the digression but here's the crunch. HMRC are neither guided by case law nor internal manual guidelines when it comes to determining what they feel should be allowable business expenditure for travel etc for the self employed. Over a decade ago , the HMRC Compliance Team in unison with National Project think tank boffins came up with how it should be. Initially attacking the medical profession with great success , any self employed individual is now open to this interpretation.
All practitioners should be made aware of this well hidden guide for accounts investigators . Have a look at the totally biased doctrine in the form of a Business Guidance Note . Just google HMRC BGN006/09 and see what I mean.
I'm reminded about the different treatment of expenses provided for our legislators in the house of commons and the level of travel expenses paid for in addition to their salary which is likely to increase to around £85k next year. They do not have to deduct travel expenses from their already generous pay and declare it on a self assessment form, but it is paid in addition to it. Ian Blackford, SNP MP for Skye claimed around £90k recently for his annual expenses much of it for travel and accommodation for having to visit Westminster to sit and talk.
Yes, one law for them, another for the rest of us. Doesn't change anything about this case. Let's just make the best of the laws we've got and work round them..
HMRC are presumably delighted he travel each day and claim his 45/25p per mile every day instead!
It may be impractical in this instance, but I imagine if it was say under 100 miles each way clients will keep quiet about their digs and put forward a mileage expense instead.
As I read it, Taylor took himself to Swindon, and then sought different contracts from that location.
The more usual approach is that a contractor first gets a contract away from home, then seeks accommodation near to that contract, for the duration of that contract.
Hence the accommodation is seen as W & E for the purpose of work.
I can see how HMRC viewed this as different, if Taylor continued to live in Swindon during non-working periods between finishing one contract and starting another.
The difference is subtle, but I can see there is a difference.
Is this another case of the Revenue going after the small man for what amounts to peanuts but leaving the multinational tax avoiders and evaders well alone because of either special "insider" deals or not able to risk the court battles in case they lose? From what I understand in the article the contractor was working as self employed and not under a limited company and so wasn't able to claim the advantages of that scheme. The journey from his home in Melrose to Swindon is 336 miles and takes around six hours driving, so not unreasonable to live locally at least during the week. National Rail suggests the cheapest rail fare of around £209 return and you can live in Swindon for a weekend for less than that so it would not be worth traveling home unless necessary. Once again we find the public sector has little grasp of the real world and the costs and pitfalls of trying to make an honest living. They should be well aware where their salaries and bonuses are coming from as last time I looked the Revenue do not make profits and do not pay corporation taxes.
extract ABOVE
'During the 2016/17 year, Taylor chose Swindon to be his base to undertake work at various sites as there was better pay on offer'
that seems reasonable as Taylor WAS Working from the hotel, its not as if Taylor went to Swindon on the chance of work, long way to commute.
extract ABOVE
'During the 2016/17 year, Taylor chose Swindon to be his base to undertake work at various sites as there was better pay on offer'
that seems reasonable as Taylor WAS Working in Swindon based at the hotel, its not as if Taylor went to Swindon on the chance of work, long way to commute.
Melrose Man has to take this further. I think he might have made a better case if he had changed his hotel accommodation from time to time; not necessarily always in Swindon.
Where you have the accommodation (as long as it's local to the work) and for how long (as long as the work continues) is irrelevant. The whole crux of the matter is that the accommodation is linked to the work by virtue of the fact that if there is no work there is no accommodation.
How do you distinguish that from an employee staying at an hotel or buying a flat just to be closer to work? Hamish Taylor did not stay at an hotel in order to do the work. He did so in order to get work a long way from home. It may seem unfair but those are the rules. There are solutions, as advised above, but he missed them. It's tough, but put it down to experience. No use moaning about it or trying to fight a losing battle. Better to learn from it instead. Get it right next time.
It is irrelevant how far away the work is. The work and accommodation are directly linked so "wholly and exclusively" is right. Perhaps HMRC have got away with too much in the past and it's time they stuck to the LAW.
I was agreeing with you, JJ, rather than cfield, but looked into the internal guidance and found this part of the Horton v Young judgment (Brightman J):
"The example given in argument was a commercial traveller who has a home in London but whose operational area is confined to Cornwall. I can quite see that in such a case the cost of travelling between London and the borders of the Duchy would not be moneys wholly and exclusively laid out or expended for the purposes of that commercial traveller’s business".
It seems that the rules DO work against Mr Taylor.
I'm sure that when I did my training, the phrase was "wholly, exclusively and necessarily". Although the "necessarily" part seems to have been dropped, the law is still being applied as if it were still there. And it would appear to me that although the travel and accommodation were wholly and exclusively for work, it wasn't necessary for the taxpayer to work in Swindon, rather than close to home.
I have to disagree. If the work was in Swindon and there was no work (at that particular time) where he lived, then it was necessary. Where the work was is of no relevance. The only reason the expenses were incurred was because of work. No other reason. Again had he moved his family in then I would agree with the decision. Horton and Young is a different case and should never have been introduced into the defence. To me this case stands on its own merits. There are a few other cases I have looked at but this is different to all of them.
Melrose Man has to take this further. I think he might have made a better case if he had changed his hotel accommodation from time to time; not necessarily always in Swindon.
Were all of the travel and subsistence costs disallowed or just those relating to the time he was there looking for work? If its acceptable for him to claim them when he is carrying out a contract then presumably the only element that should be disallowed is the element incurred using the area as a base to look for work.