Dancer in pole position for tax relief

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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.

Bare facts

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.

Clothing

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.   

Travel expenses

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.

Final judgment

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.

Twisted position

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.

About Andy Keates

Replies

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14th Sep 2018 16:32

"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”. "

I'll assume the judge in this case doesn't frequent the city centres of Britain on the weekends then. If he did then his views on this may change...

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15th Sep 2018 09:25

I have to admit, I'd already read the judgment in the case and so was aware already. Let's face it, what red blooded male would NOT read a judgment about an exotic dancer's underwear.

More seriously, it does highlight HMRC's almost pathological desire to link similar, but nevertheless very different claims and cases without looking through to the facts, and is a timely reminder that HMRC should, when properly appropriate, be challenged.

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to SteLacca
17th Sep 2018 11:47

Re your second paragraph, SteLacca, see my comments below.

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17th Sep 2018 10:45

Amazing, those case law cases still crop up, over and over again, the barristers formal clothing ect.

To me the hub of the problem was this
'HMRC assessed additional tax for the years 2010/11 to 2013/14 on the basis that she had claimed excessive business expenses. '
Why cannot clients and accountants claim a reasonable amount instead of going for the jackpot, however i am glad crappy accountants are out there, some of us just sail on by, un-apposed.

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to AndrewV12
17th Sep 2018 11:47

Re your observation, AndrewV12, see my comments below.

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By Jdopus
to AndrewV12
17th Sep 2018 16:39

Just because HMRC declare someone's business expenses to be excessive doesn't mean they truly are excessive.

HMRC would very much like it if taxpayers claimed the bare minimum, whereas part of our job as advisers is to make sure our clients claim what they're fully entitled to.

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17th Sep 2018 11:02

I'm surprised that she didn't claim for use of home as rehearsal space.
And don't forget to claim for cosmetic surgery and contact lenses, where appropriate.

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to leon0001
17th Sep 2018 11:49

Re your observation Leon0001, see my comments below.

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17th Sep 2018 11:16

Reminds me of the ABBA tax case where they maintained that they specifically wore outrageous costumes to get their tax relief.

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17th Sep 2018 11:45

As the accountant acting at the Tribunal, as well as her accountant in the years up to 2011, I would like to clarify some points for the benefit of AWeb readers.

In answer to AndrewV12: the expenses claim for costumes, cosmetic, etc, was always on the basis of business costs only, and therefore reasonable, and certainly not excessive in the context of her income. She could not always get receipts, eg from market traders. In any case, a full contemporaneous record was maintained in a cash book of all expenditure, so according to the tax legislation and HMRC Guide, this should have been sufficient. That this was agreed by Judge Guy Brennan is vindication.

In answer to Leon0001: full details of the use of home were provided, and not inconsiderable. Horton v Young has been the substantive Case for 45 years for self employed people. The Judge focused on the "itinerant" part of that Judgement, instead of the fact that Horton did not have an office or base at his clients, as in the Gemma Daniels Case.
Neither Samadian nor Newsome are appropriate or similar, as they clearly had a proper business base in addition to their home office. It is salient that Samadian was allowed his travelling expenses from home in relation to his private clients, which part is similar to Gemma Daniels. The Judge decided that there had been carelessness as Gemma Daniels "should have known that travelling expenses from home were not allowable". I have made an Application to Appeal these points.

In answer to SteLacca's second paragraph: the particular HMRC Inspector dealing with this case was extremely heavy-handed and over-zealous throughout, which is why, despite several letters of contention and reference to those cases above, as well as a pointless and abortive ADR meeting, it took three years to get to the First-tier Tribunal. None of it should have been necessary had he been more reasonable. At the Tribunal, he even admitted that he would not have allowed ANY of her expenditure, even if she had supplied full invoices! The Judge agreed with me, as stated in his Decision several times, and I have requested Wasted Costs as a result, omitted from the Decision and therefore also part of my Application to Appeal.

I believe this Inspector dealt with a number of Stringfellows dancers, some of whose accountants (like my successor/predecessor) gave up too easily, because of his heavy-handedness. He originally raised additional assessments, penalties, etc, for 6 years. I understand that some of the dancers may have filed for bankruptcy rather than argue the points, and have suffered as a result. If there are any out there reading this who would like a second opinion, contact me.

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to Jack the Lad
17th Sep 2018 11:54

Thanks for taking the time to respond JtL. Some interesting background on the case and clarifications.

All the best,

Tom

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to TomHerbert
17th Sep 2018 12:13

Agreed. Good to get more of the history from the horse's mouth.

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to Jack the Lad
17th Sep 2018 16:14

Firstly, congratulations.

Secondly, the end of the article suggests that the difference between the Mallalieu case and your client's case is that Gemma's clothes could not be worn outside of the job. But that is not the case with all actors' clothes (e.g. if playing an accountant and wearing a suit). So, is the article slightly wrong on that point? Should it not be 'will not be worn' rather than 'cannot be worn' away from the job?

And, if so, given that warmth and decency wouldn't come into play as an argument against, could not a TV presenter claim for hairstyling and a jacket (if never worn outside of the studio)?

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to Peter Bromiley
17th Sep 2018 17:26

Thanks Peter.

The Inspector was wont to disallow all such costs, but his Review Solicitor accepted the premise that the expenditure was on costumes, but allowed only 20% due to the absence of all verifying invoices. The point at issue in the Tribunal was whether the contemporaneous record in the cash book was sufficient evidence according to the legislation and Guide. Despite the Judge's (unfair in my opinion!) criticism, he allowed everything following my arguments.

As with all cases, it is relative to the use, purpose, etc. The examples of an actor buying a suit, or presenter buying a jacket, would certainly come within the "dual purpose" rule, if they were kept for personal use after professional use. If they became part of a costume wardrobe, and only used as such, I would certainly argue for full allowance.

Hairstyling costs may be allowable in full, if it could be demonstrated that this was required as part of the "act", as was the case with Gemma, and not normal private expenditure.

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to Jack the Lad
18th Sep 2018 07:17

@J-T-L.

Sir,

May I warmly congratulate you on your victory, wish you every - deserved - success in the forthcoming appeal; and further, compliment you on your crisp, concise and extremely well composed article and your first response, as above.

It warms my heart to read such literary writing, free of spelling errors and conforming to the basic rules of English Grammar, as i was tort at Gramar skool, far two many yeers ago too admit!

More seriously, I have two points, hereon:

1. As we now all (hopefully!) realise: the new style of supposed democracy and transparent justice of our societal system, is mocked by the adversarial nature of the Tax "Tribunals" at both levels. Today, in order to represent their client's/clients' interests and provide "Best Advice", Due Diligence, AND meet the spirit and increasingly onerous demands of our professional bodies' Ethical Codes and expected rules of Practice, I would suggest those practitioners without significant knowledge of Tax Law and the advanced expertise of case argument, and articulation skills, necessary, must automatically recommend the client/clients employ the services of a third party expert specialist, to be able to prove they (sic the originating accountant) has acted, demonstrably, in and to their client's/clients' Best Interest.

2. It is abundantly clear, HMRC are increasing acting as Judge, Jury and Jailer, which ought to be perceived as anarchy, and the effective abolition of so many years of British jurisprudence, be automatically acting as if the taxpayer be presumed guilty and demanding they -sic The Taxpayer - "Prove themselves innocent".

Ergo: this is applying the French-style Code Napoléon rather than the long-established British criterion, ethic and doctrine of "Innocent until proven guilty beyond any reasonable doubt!". i.e. a complete and anarchic juxtaposition. Think APNs; Mandatory Declaration of Tax Avoidance Schemes employed" on Tax Returns et al. Clearly, HMRC are in point of fact acting Ultra Vires.

Interestingly, I recently been invited to contribute by the "The House of Lords Economic Affairs Finance Bill Sub-Committee, chaired by Lord Forsyth of Drumlean, has today launched an inquiry on the draft Finance Bill 2018. As part of its scrutiny of the draft Bill, this inquiry will explore the recent expansion of HMRC powers and its practical impact on taxpayers".

Please accept, I write this not immodestly, but mainly, however, I presume, as I have contributed to ALL Consultative Programmes on MTDfb et al from inception of this debate.

As before, I shall keep members herein appraised and updated on outcomes and results.

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to Michael C Feltham
18th Sep 2018 16:03

Thanks for your kind comments Michael.

On your other points, I could not agree with you more! I have been in practice for 60 years now, (including my years as an Articled Clerk -- those were the days!), and since the change to self-assessment in 1997, not forgetting the years leading up to that change, it is clear that HMRC have adopted a more hard-nosed attitude, particularly to the SME taxpayer -- much easier meat than the large corporations, who can afford to pay outrageous fees to the likes of PWC, Deloittes, et al, to find increasingly unsavoury ways to avoid and evade tax.

There is no doubt in my mind that in the twisted mind of HMRC, they now believe that you are guilty until you can prove your innocence, which flies in the face of the law, as it was meant to be practised, and is absolutely contrary to the intentions of the Taxpayers Charter (does this really exist any more?!). This was certainly how HM Inspector approached Gemma Daniels' Case.

Good luck with your work on the Finance Bill 2018.

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By keithas
to Michael C Feltham
18th Sep 2018 15:27

Please don't appraise us, but feel free to apprise us.

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to keithas
19th Sep 2018 14:14

@keithas.

Nice riposte!

Mea culpa.

No excuse excepting, I write on a number of fora, en passant, very much "On the run" as presently, I am far too busy!

And I am supposed now to be Semi-Retired!

I wish...

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By Tromdo
17th Sep 2018 13:23

This has quite made my day.
When I was a rather junior tax inspector, I might have been swayed by the arguments!
The amount and context of the claim isn't mentioned. That's important.

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to Tromdo
17th Sep 2018 15:36

Hi Tromdo, good to know!
The original total of all liabilities was well in excess of £30,000, as HMRC were claiming carelessness at best, so this included penalties. The current total has not yet been calculated by HMRC, but should be less than £2,500. As I have applied to appeal, and in any case claimed additional previously unclaimed expenses, the final total should be negligible or a repayment.

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By Tromdo
to Jack the Lad
18th Sep 2018 15:39

I meant the claim to expenses but I note you dw this in a separate response.
It's not a huge sum, and I'd like to think if I'd been the HMRC person (no Inspectors any more alas) it wouldn't have gone to FTT.
However we live in another world now, where the relationship between tax professionals on either side no longer exists except in certain specialised areas.

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17th Sep 2018 14:32

Would have helped a bit more if the costs/expenses were revealed.

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to JessicaRain
17th Sep 2018 15:53

Hi JessicaRain, I assume you mean the taxpayer's original expenses, not mine!
In the original enquiry year 2013/14, the expenses claimed were:
Costumes, cosmetics, etc £8,603
Mileage £1,112
They went back 6 years on similar claims, disallowing everything.
Hope this helps with the context.

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By spilly
17th Sep 2018 22:16

It’s nice to have confirmation that I have been correct in allowing all the costume claims for my burlesque dancer clients. After all, how many of us would wear a feather boa to go shopping?

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By wamstax
17th Sep 2018 22:24

Equally the judge might have a very sheltered upbringing if he didn't think that Daniels could have been wearing them at home - without going out...… Surely HMR&C must appeal this one OR maybe not if the judge perhaps appreciated the show

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to wamstax
18th Sep 2018 15:59

Whose side are you on, wamstax?!

Seriously, whilst it is possible that Gemma and her colleagues might wear the heavy make-up and skimpy costumes at home, the Judge rightly decided that this was unlikely. The law has grey areas which need interpretation, which must be applied to the "man or woman in a Clapham omnibus".

As far as I am aware, HMRC have not appealed this decision.

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18th Sep 2018 14:03

Thank you, Jack the Lad.
I have been retired for about 8 years, but I still have an interest in the case, as I am a trustee of one charity and internal accountant to a family member's private company, so I still play with spreadsheets and ETB.
We have changed our professional accountant following the retirement of our existing accountant in practice. this has involved us in fee protection insurance. Do you regard this as essential, and were you happy with the results? (Obviously I'm not asking you for figures).
(Incidentally, I'm surprised the Learned Judge didn't go down to Stringfellows to see for himself, and nor did HMRC. They might have preferred it to clambering over building sites looking at what we successfully claimed was an industrial building.

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to Ken of Chester le Street
18th Sep 2018 16:13

I do not believe that the accountants who were acting re 2013/14 and up to the point I took over the case, had offered FPI, but if they did, she didn't take it up, unfortunately!

The Judge did not find it necessary to visit Stringfellows, presumably as he was aware of how it works and what the dancers do!

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to Jack the Lad
18th Sep 2018 17:22

Thanks JtL
If, unlike their client, your predecessors had made full disclosure, presumably HMRC could not have reopened years once the enquiry window had closed.
You were right to make your client persist with the case. I had a client, a professor, whose substantial working library of books , some of them antique, was regarded as unnecessary by HMRC, and capital allowances challenged, when I brought it into the capital allowances claim, having been missed by my predecessor. He was reluctant to resist, preferring to spend his time more usefully, but I pointed out to him that HMRC might be testing the water, and his colleagues in that department might find their libraries challenged. (Professors one year, pole dancers the next!)We were 85% successful in our claim, following a requirement for HMRC for an analysis of the use to which the books were put, some were not sufficently relevant to his field. Our success might have been because I was able to produce a copy of a letter from another inspector to a professor in another university (name and references blacked out), refusing revenue treatment of his books and actually requiring me to provide a capital allowances computation, obviously indicating that other Districts weren't contending that a University professor didn't need reference books.
When I brought in the library, I provided a full list of titles and estimate of value, and how it had been arrived at. Consequently, when HMRC offered agreement without penalties and earlier years left as they were, I think this was because the window had closed anyway.

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to Ken of Chester le Street
18th Sep 2018 17:39

Thanks Ken.

On your first point, full disclosure was made. On the question of Discovery, I challenged this, as the accounts had always been prepared according to prevailing law and practice. However, the Judge considered that the claim for travel was incorrect under Horton v Young, and decided that HM Inspector had therefore made a discovery.

I have applied to appeal against this point also.

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to Jack the Lad
19th Sep 2018 08:28

I wrote: "We have changed our professional accountant following the retirement of our existing accountant in practice. this has involved us in fee protection insurance."
This may have given the impression that our retired advisor didn't use FPI. He did, through FSB. (I didn't use FSB for any other purpose, but for a very small practice it was the cheapest way of getting FPI).

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to Ken of Chester le Street
19th Sep 2018 14:37

"Incidentally, I'm surprised the Learned Judge didn't go down to Stringfellows to see for himself, and nor did HMRC. They might have preferred it to clambering over building sites looking at what we successfully claimed was an industrial building.".

Ah, Ken;sadly, the days of "Proper" judges is long gone.

I well remember case law I studied many years back and one stands out. Lord Denning, then Master of the Rolls, in the Court of Appeal, halted the case and instructed his clerk to assemble a fleet of taxis in order council and the judges, might travel to the site to properly comprehend the argument.

With today's Sausage Machine, tick-box "Justice" Judges such as Lord Denning no longer exist.

https://en.wikipedia.org/wiki/Thornton_v_Shoe_Lane_Parking_Ltd

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19th Sep 2018 17:26

It's very lucky, accounting web wasn't around back in the early 1980s...

Otherwise, the case of Miss Whiplash would have caused AWeb's Internet server, to probably explode into tiny bits!

I can just imagine the double entendres and other dubious comments.

The thread would have run and run...

https://www.taxrelief4escorts.co.uk/background-stuff/the-whiplash-cases/

https://www.independent.co.uk/news/uk/lindi-st-clair-strikes-back-agains...

As chair of my County association group of one professional body, years ago, I organised and presided over our regular CPD seminars.

One month we had two Tax Inspectors as the guest speakers, (Males, fortunately) which was important at the time, owing to yet more changes in Tax Law and the codes.

Once the meeting reached that interesting point, where the lead speaker, dangerously asks "Do you have any questions?", I stuck my mitt up.

And said:" Tell me Inspector XXXX; surely, if Her Majesty's Inland Revenue takes taxes from a [***], then surely, this can be classed as living off immoral earnings?"

Everyone, including the tax inspectors fell about!

Leave 'em laughing has always been my motto!

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By Tromdo
to Michael C Feltham
20th Sep 2018 16:16

"General Trading" was what I described as on the assessment...

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to Tromdo
24th Sep 2018 11:18

I seem to recall, eons ago in the pre-SA days, a case where an Inspector decided to assess a woman on her earnings from prostitution but, being a bit prim and mealy-mouthed, he used the (then current) euphemism "French lessons" as the source of income.
At the Commissioners, he was asked whether he had any evidence that the lady actually taught French; on replying no, he was told that the assessment would be dismissed as it assessed a non-existent source....
Distant memory only, and might be purely apocryphal, but we can dream.

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to Andy Keates
25th Sep 2018 11:53

@Andy Keates:

I have always believed, Andy, that there is a latent case lurking on this issue, for someone with a large wallet and a big pair of brass ones!.

One of our Lecturers on law of contract, as we discussed Illegal and/or Immoral Acts cannot form the basis of Offer and Acceptance thus there can be no contract (e.g. I cannot sue you if you and I agree to burgle a mansion, I appear on the due date and time and you don't!

He therefore advised us to ALWAYS pay for such naughtiness by cheque! Since when it bounced it could not be collected since the prima facie defence was the payee had committed an Immoral Act and the extant law (Bills of Exchange Act, Cheques Act et al) proscribed such actions.

Conspiracy to commit an Illegal Act, thus No Contract.

Prostitution; Immoral Act; thus no contract. Rather as Gambling Debts cannot be enforced and are thus, legally noncollectable. Wink Wink: which is why Casinos and Bookies err, send in "The Boys"!

I therefore aver HMRC or indeed any other Public Body cannot collected monies from Prostitutes as their activity is an Immoral Act!

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By Tromdo
to Andy Keates
25th Sep 2018 13:10

The thing was, the lady was happy to pay her taxes. And NI for obvious reasons. She was switched on if you'll pardon the expression.

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By Tromdo
to Michael C Feltham
20th Sep 2018 16:16

"General Trading" was what I described as on the assessment...

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to Tromdo
24th Sep 2018 12:13

One of your former colleagues (50+ years ago!) said it was assessed as furnished lettings.
I would have thought as general trading the capital allowances claim would have been a bit embarassing.

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