An exotic dancer has been allowed to claim the cost of certain clothes, hairdressing and make-up against her profits, but not her home to club travelling expenses.
Gemma Daniels (TC06640) was a self-employed exotic dancer who performed at Stringfellows nightclub in central London. HMRC assessed additional tax for the years 2010/11 to 2013/14 on the basis that she had claimed excessive business expenses. HMRC also issued a penalty under Schedule 24 FA 2007 on the basis that her tax returns for those years were carelessly inaccurate.
We all know the case Mallalieu v Drummond, in which a female barrister lost her claim for formal clothing (dark suits, white blouses etc) which she required so as to be allowed to appear in court. This has become the leading case on the subject, such that few tax agents these days would risk claiming for their clients’ clothes. Yet Daniels claimed a deduction for clothing (including underwear), cosmetics, shoes and hairdressing and the judge granted her claim.
To understand this, we need to consider: why Mallalieu lost; what was so different about Daniels’ clothes; and the weaknesses in HMRC’s presentation.
Why Mallalieu lost
Anne Mallalieu’s reason for claiming that her clothing costs were incurred “wholly and exclusively” for the purposes of her profession was that she would never have worn such clothes privately; she had genuinely only bought them in order to be allowed to appear in court.
The House of Lords judged that she had a second (albeit unvoiced) purpose, namely that of warmth and decency. She had to wear something, and – never mind her preference not to – could easily wear the court clothing in private. Hers was, then a “duality of purpose”, and the “exclusively” test was failed.
Why Daniels won
The type of clothes Daniels wore to perform at Stringfellows were “not appropriate to be worn outside that club”; they were “see-through” and “skimpy”. Most importantly, they “could not be described as providing ‘warmth and decency’, the mantra used in Mallalieu”.
This extended to her lingerie, which was “of a suggestive nature and… not suitable for use outside Stringfellows”. Her shoes included 6 to 10 inch high heels designed to grip a pole while hanging upside down from it during her act.
The judge decided that, while Mallalieu could easily have worn her court clothes in private life, Daniels could not have worn her dancing clothes outside the confines of the Stringfellows club. Hence there was no duality of purpose, and so the costs should be allowed.
Apparently, while no-one cares if you look like an off-duty barrister on the bus, the courts draw the line at looking like an off-duty exotic dancer!
Similar reasoning applied to the heavy, theatrical make-up which Daniels used in her performances, as well as to the hair extensions, fake tan and manicures she wore. The judge referred to HMRC’s own manuals including guidance for actors (BIM 50160) where even cosmetic dentistry may be considered acceptable expenditure for a performer.
Why HMRC failed
HMRC could not seem to fix upon a consistent line of attack.
In the internal review which concluded before the FTT hearing, HMRC put forward the position that, while the expenditure probably did have a qualifying purpose, most of it should be disallowed because only around 10% could be adequately evidenced with invoices. In the spirit of compromise, a 20% allowance was offered.
By contrast, in its submissions to the FTT, HMRC criticised Daniels for poor record-keeping but accepted that she had in fact incurred the expenditure; the argument was for disallowance on Mallalieu grounds.
Clearly these were incompatible stances. The judge decided that, while Daniels should have kept better records, no-one had suggested she was lying, so all of the expenditure claimed in the returns should be accepted regardless of the lack of invoices.
Daniels claimed a mileage allowance for travel between her home in South-West London (where she maintained an office) and Stringfellows. Her accountant’s rationale was that her home was her base of operations and that the Court of Appeal’s judgment in Horton v Young (which allowed travel expenses) applied to her.
Horton was a building subcontractor who worked on numerous short contracts at different sites. His only real, permanent place of business was his home (the Court referred to him as an “itinerant” worker), such that any travel to building sites was genuinely “for the purposes of his trade”.
The judge found that Daniels was in an entirely different situation. While she did many things at her home office – such as booking performances, advertising, drawing up her cashbook and general administration – the one thing which she did not do there was dance. This she only did at Stringfellows, which was clearly her place of business.
The judge drew attention to the Upper Tribunal decision in Dr Samadian UKUT 0013 , in which the doctor’s travel between two hospitals and his home (where he also carried out considerable work) was disallowed as being “partly for the purpose of enabling him to maintain his home… away from the places where he carries on his business”. Daniels’ travel costs were also tainted with such a “duality of purpose”, and so were disallowed.
A partial victory for the dancer. The tax assessments and penalty were upheld so far as they related to travel expenses, but dismissed in relation to clothing and related expenditure. HMRC was tasked with re-computing the final tally.
Samadian strikes again – it seems the courts would prefer all self-employed people to live at the office. The notion that, no matter how much substantive work gets done at home, the business only starts once you reach the point of delivery seems strangely out of kilter with the modern, connected lifestyle.
However, Mallalieu did not strike again. Costumes and other clothes which cannot be worn away from the job are allowable.
So, two very different outcomes for “duality of purpose”, a doctrine which requires ever more elaborate judicial gymnastics to navigate.