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Dentist’s accommodation claim overturned on appeal

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A dental surgeon’s victory at the first tier tribunal was overturned on appeal by the upper tribunal when it was decided that his claim for local accommodation was hard to swallow.

18th Aug 2023
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Jayanth Kunjur was a junior doctor working as a maxillofacial surgeon at a hospital in London. Kunjur had previously been before the first tier tribunal (FTT) regarding a disagreement with HMRC as to whether some accommodation and related costs were allowable for tax purposes.

Kunjur was a practising dental surgeon who took a training position at a London hospital. He was required to be on call two nights a week and every sixth weekend, as well as available for calls “most nights”.

In order to discharge his duties, Kunjur believed he needed to be within 30 minutes of the hospital while on call. This was not possible from his home in Southampton, therefore Kunjur found local accommodation in Colliers Wood where he stayed in the week and every sixth weekend. Kunjur did not consider this to be an “attractive place to live” and so did not invite his family to visit, much less ask them to relocate.

Initial decision

Kunjur claimed the cost of his accommodation and telephone/internet expenses against his taxable income under ITEPA 2003 s336. HMRC disputed this, raising assessments and penalties, but the FTT allowed Kunjur to have a proportion of the costs set against his income, based on three points.

HMRC subsequently sought and received permission to appeal this decision to the upper tribunal (UT). However, shortly before the hearing Kunjur withdrew his case as he was concerned that he would become liable to costs should HMRC succeed. In spite of the taxpayer’s withdrawal the hearing still went ahead. 

Reconsidering the decision

HMRC appealed on the same three issues that the FTT had based their decision, namely:

  1. whether Kunjur was obliged to incur the expenses as holder of his employment
  2. whether the expenditure was wholly and exclusively incurred in the performance of the duties of his employment
  3. whether the expenditure was incurred in the performance of the duties of his employment.

Kunjur needed the UT to find in his favour on all three points to be entitled to a claim under s.336, therefore HMRC only had to succeed once to overturn the FTT decision.

Obligation to incur expenditure

The FTT had considered that the test as to whether an employee was obliged to incur the expenditure could be a subjective one. However, the UT believed that it had to be an objective test and therefore the question was whether all persons employed in the same role as Kunjur would be obliged to incur similar expenditure.

Clearly this would not be the case for an employee who lived locally, therefore Kunjur had not incurred the cost because he was obliged to do so, he had incurred it by choice based on his personal circumstances. This also made moot the question as to whether he could have incurred cheaper accommodation or moved his family.

Wholly and exclusively

The FTT had found that Kunjur had used the accommodation partly for the purposes of his employment and partly for private benefit. In accordance with the treatment adopted when considering “wholly and exclusive” expenses for business profits, the costs had then been apportioned, such that only part could be set against taxable income from the employment.

The UT disagreed with this treatment and made reference to Mallalieu vs Drummond, which made note of a potential distinction between the object of the taxpayer and the effect of the expenditure. The FTT had not suggested that the personal advantage gained by Kunjur was merely an effect of the accommodation costs, though the UT noted this would have been moot regardless.

Kunjur’s object was to provide himself with living accommodation for both employment and (not incidental) personal purposes and so no deduction was allowed for any part of the cost.

Performance of the duties

The FTT had found that when Kunjur was providing call advice or carrying out research from his accommodation, the premises were being used to enable the performance of his duties.

While the UT agreed with this, it noted that this did not mean the accommodation costs were incurred in the performance of the duties of the employment. The expenditure instead put Kunjur in a position where he could, among other things, do the work he was employed to perform. This was not the same as incurring the expenditure in the performance of his duties of employment.

Unsurprising decision

In order for their appeal to succeed, HMRC needed the UT to find that the FTT had erred in law in respect of any of the three points they had highlighted. The UT found it had erred on all three counts.

The decision was remade and Kunjur’s appeal against it dismissed. An unfortunate, but perhaps not unsurprising, decision.

Replies (8)

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By SteveHa
21st Aug 2023 08:09

How did this even get past the FTT? A principle as old as Methusalah suddenly turned on its head by the FTT, forcing the UT to bring it back in line.

Thanks (2)
Donald MacKenzie
By Donald MacKenzie
21st Aug 2023 10:04

Why does the article end, "An unfortunate, but perhaps not unsurprising, decision."

It is NOT "unfortunate" that tax law is properly applied and taxes properly levied.

Odd that the FTT would ever have accepted that an employee could run a second home as an employment expense.

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By fawltybasil2575
21st Aug 2023 10:54

@ Rickie:-

Noting your stating that:-

"In spite of the taxpayer’s withdrawal the hearing still went ahead",

one should acknowledge that the UT decision stated that, prior to the hearing, HMRC confirmed that they would not apply for any costs.

As the two previous eminent posters have rightly said, the decision was correct, and thus IMHO not "unfortunate" . Given the additional benefits that:-

(i) Clarification of the principles at issue arose from the UT's overturning the FTT decision, and

(ii) The taxpayer's having the assurance that he expected adverse consequences of (i) would not result in his having to pay the HMRC costs,

I believe that the outcome was of benefit to all parties, and to all whose circumstances might in future be similar to the taxpayer's.

https://www.bailii.org/uk/cases/UKUT/TCC/2023/154.html.

Basil.

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By sammerchant
21st Aug 2023 12:42

I remember the days when HMRC would meet the costs of both parties to test a contentious point before the General/Special Commissioners.

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Replying to sammerchant:
By SteveHa
21st Aug 2023 15:41

What is even remotely contentious about this, apart from the FTT finding it very wrongly.

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Replying to SteveHa:
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By sammerchant
28th Aug 2023 16:52

I was just making the point that nowadays it is going to cost you to challenge HMRC.

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By Justin Bryant
24th Aug 2023 13:36

It's a shame the Healy case was not considered re W&E (he lost on W&E coz he injudiciously conceded there was a dual purpose re friends visiting his London flat and the tribunal did not indicate there would otherwise have been an "exclusively" dual purpose problem, although that was arguably distinguishable as temporary accommodation*).

https://www.gov.uk/hmrc-internal-manuals/business-income-manual/bim47705

https://www.bailii.org/uk/cases/UKFTT/TC/2015/TC04425.pdf

http://taxandchancery_ut.decisions.tribunals.gov.uk/Documents/decisions/...

The fact this was a training position and so not of an indefinite period (and so was arguably temporary and in Healy the UT said many months was not a problem there) was sadly not considered (but as an employee under s336(1) ITEPA 2003 he would have lost anyway of course re "obliged" and "incurred in the performance of the duties").

*itinerantcy considered here re travel expenses and accommodation is analogous: https://www.accaglobal.com/gb/en/technical-activities/technical-resource...
https://www.rossmartin.co.uk/sme-tax-news/1045-not-more-travel-mix-ups

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Replying to Justin Bryant:
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By sammerchant
28th Aug 2023 16:51

And, yet, I believe, had the theatre paid for the accommodation, Healey would not have been taxed on it. Also, I expect the theatre would have been allowed the cost.

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