Tax tribunals crack down on duality of purpose

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Nick Huber
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Accountants whose clients deduct business expenses from their tax bill need to ensure that the expenses are solely for the purpose of trade, two recent tax cases have shown.

It sounds like common sense but two tribunal decisions - (The commissioners for HMRC and Tim Healy, UKUT 0337 and Philip McMahon and the commissioners for HMRC, TC02799 - have once again shown that distinguishing between business and personal expenses for tax purposes can be tricky. One tax expert said that the Healy case could have implications for many self-employed people.

Tax adviser Gabelle has analysed the following two cases...

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30th Aug 2013 15:18

Sloppy wording

Accountants whose clients deduct business expenses from their tax bill need to ensure that the expenses are solely for the purpose of trade, two recent tax cases have shown

I sincerely hope that there are no accountants here who deduct expenses (business or otherwise) from their clients' tax bills :)

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By Mallock
02nd Sep 2013 12:29

Common Sense

Sometimes I wonder at the stupidity of the law and those who write and apply it.

So now someone on a contract must stay in a hotel or guest house at considerably greater expense rather than taking a short term let on a flat. It makes no sense to me on a common sense or reasonableness basis although I accept that duality of purpose has always been an issue.

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02nd Sep 2013 14:04

mis wording


Can someone translate this bit to Geordie for me

Expenditure on items that outside a business context simply meet ordinary needs can be regarded as having solely a business purpose such as food and drink in the context of business lunches (Bentleys, Stokes & Lowless), hotel accommodation in the context of business trips or conferences (Elwood v Utitz), accommodation for an itinerant trader (Sean Reed) 


Aufweidersein and Thanks Pet

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By ds
02nd Sep 2013 14:14

But why can it not be argued that...

...if someone is working away from home they will need somewhere to live, if regular commuting home on a daily basis is not possible and that could be anything from; a tent, caravan, mobile home, apartment, house, castle or mansion. Surely it is reasonable to claim for something that is similar to what is normally home and so claiming to live in a mansion where your permanent home is a small flat would be unreasonable. Also I can not see the advantage to HMRC to allow claims for a hotel, which might be five or more times as much, than for an apartment. The expenses will be considerably larger and so the corresponding corporation tax much less. Seems like they are shooting themselves in the foot.

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02nd Sep 2013 14:26

I hope sense prevails

I hope this doesn't set the wrong default precedent for all contract workers who work away from home for 6 to 12month period (for example).  I know IT workers who live in Scotland or the North of England and work for 6month contracts in London, so it makes sense for them to rent than pay hotel bills.  I'm sure they will be claiming their rent as an expense. So does this mean they can only claim 5/7ths of the total expense (assuming they visit home on weekends), or would no claim be permitted at all on the basis they weren't in a hotel?

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02nd Sep 2013 15:11

Hotel bills?

If you follow this to its (absurd) logical conclusion, hotel bills should also be excluded. Why? Because staying in a hotel has exactly the same duality of purpose as letting an apartment, namely that it provides warmth and shelter.

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By kfh
02nd Sep 2013 15:35

Another nail in the cofin for contractors

This appears as perverse as me having to to pay tax on a small rented flat as benefit in kind (as a director) when working on contract in London. As the flat overlooked Wormwood Scrubs (the prison not the park), the central line and the Westway and I commuted home at weekends I could never work out were the benefit to me was. I did not get questioned on duality of purpose.

It would be interested to see the tax claims from the various senior civil servants paid as contractors and have they had similar problems?

With IR35 still a contentious area one wonders if HMRC realise they are making contracting very unattractive, having said that they are probably not bothered about the potential impact on UK PLC.  I, for one, have given up on the delights of earning vast amounts of money, and spending it, while contracting and weekly commuting, now earn far far less,  spend less, pay very little in tax,  stay at home and am far happier with the lack of stress and worry about whether that contract three years ago was really IR35 exempt and the potential financial impact if HMRC decide it was not.

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02nd Sep 2013 18:57

Im self employed

Does this mean I wont be able to claim the £12.80 I spent on bacon sandwiches while working in Turkey? Gutted !

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03rd Sep 2013 14:33


what about the Turkey sandwich I bought in Bacon GA USA $3.25...

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03rd Sep 2013 18:44


So presumably the same kind of logic must apply to MP's with their long term accommodation (ie 2nd homes) in London.  After all a 2nd home is simply a cheaper version of a rented one. So a BIK charge is the fair way to go?

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03rd Sep 2013 19:37


Whatever happened to apportionment?

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04th Sep 2013 07:48

Apportionment ...

... works only if you can identify specific business and non-business elements, eg motoring costs, where each journey, period of use etc is wholly and exclusively business or non-business. So there is no duality. In cases such as the above, the argument is that at any one time the accommodation has a dual purpose - it may well be required for the individual to carry out his duties etc but at the same time it is providing him with warmth, shelter etc, so there is duality of purpose. Point is that an asset can be used W&E for different purposes at different times without having duality of purpose - but if it is used for different purposes at the same time, it makes it much harder to argue W&E.

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By raycad
04th Sep 2013 11:08

But, but, but... does this square with the guidance in HMRC Booklet 480, para 21.24 (reproduced at the end of this posting)?  This states that a full deduction will be due for cost of a flat etc if it is cheaper than a suitable hotel.  More to the point, it also states explicitly that an apportionment may be allowed where, for example the employee's family reside in the flat etc.

To answer my own question, although I haven't read the full case report, I believe Tim Healey's appeal concerned what I still call a Schedule D Case I deduction, rather than an employee under what I still call Schedule E, who would have claimed under s336 of ITEPA. But, given that the Schedule E rules are notoriously stricter than the old Schedule D ones, it does seem rather an absurd state of affairs that you end up with a better outcome as an employee!  Perhaps Mr Healey needs to work through his own service company?!  


If accommodation is provided for an employee, for example, in a flat or hotel, while the employee is on business duties away from his or her home and normal place of work, the cost of this may be allowable as a deduction under the expenses rule. For example, a company in Yorkshire may rent a London flat for an employee who has to make frequent business trips to London. The extent of any deduction will depend upon the circumstances. If the accommodation is no more than an alternative to hotel accommodation and is not available for private occupation the whole cost of renting and running the flat may be allowed as a deduction. On the other hand, if the employee or his or her family also had the use of the flat as a private residence any allowance would be restricted.

Provided living accommodation will never be included in a dispensation and so even if there is a potential deduction under the expenses rules, the provision of the accommodation must be reported on form P11D each year.


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