Carney v Nathan
| Jurisdiction | England & Wales |
| Judgment Date | 05 December 2002 |
| Date | 05 December 2002 |
| Court | Special Commissioners |
special commissioners decision
Dr John F Avery Jones
1. This is an appeal by Miss Nena Maria Carney against an amendment to a self-assessment for 1998/99. The appellant was represented by Mr William Currey and the inspector by Mr Ian Mitchell.
2. The only items in dispute are the deductibility of nursery costs of £1,534 and playgroup costs of £104 in computing the profits of the appellant as a self-employed graphic designer.
3. Both parties provided skeleton arguments. I had a witness statement from the appellant but she did not give oral evidence. After Mr Mitchell's opening speech Mr Currey asked if he could have further time to reply to the human rights points in writing to which I agreed and Mr Mitchell made written comments on his reply.
4. The appellant's witness statement says that she works from her home and her work involves clients and suppliers visiting. She has two children, born 26 September 1994 and 15 July 1997. She found it unprofessional and embarrassing to have children running around and playing in her working environment while third parties are visiting. She did not want the sound of children in the background when she was telephoning. She also has to visit clients regularly. She says that her object in making the payments for a nursery facility was to stop losing clients and to be able to have clients and suppliers visit her with the appearance of a business-like office/studio at her home. But for her business it was unlikely that the children would be sent to nursery care.
5. Mr Currey contends that the expenditure was wholly and exclusively incurred for the purposes of her trade within s. 74(1)(a) of theIncome and Corporation Taxes Act 1988. Mr Mitchell does not argue the expenditure being included in the accounts but contends that they are disallowed under that provision and also para. (b) as:
any disbursements or expenses of maintenance of the parties, their families or establishments, or any sums expended for any other domestic or private purposes distinct from the purposes of the trade, profession or vocation.
6. Both parties referred to a number of familiar authorities on s. 74(1)(a). I can start with the following summary from Vodafone Cellular Ltd v Shaw TAX[1997] BTC 247 at p. 253F:
The leading modern cases on the application of the "exclusively" test are Mallalieu v Drummond TAXELR[1983] BTC 380; [1983] AC 861 andMackinlay v Arthur Young McClelland Moores & Co TAXELR[1989] BTC 587; [1990] 2 AC 239. From these cases the following propositions may be derived:
1. The words "for the purposes of the trade" mean "to serve the purposes of the trade". They do not mean "for the purposes of the taxpayer" but "for the purposes of the trade", which is a different concept. A fortiori they do not mean "for the benefit of the taxpayer".
2. To ascertain whether the payment was made for the purposes of the taxpayer's trade it is necessary to discover his object in making the payment. Save in obvious cases which speak for themselves, this involves an inquiry into the taxpayer's subjective intentions at the time of the payment.
3. The object of the taxpayer in making the payment must be distinguished from the effect of the payment. A payment may be made exclusively for the purposes of the trade even though it also secures a private benefit. This will be the case if the securing of the private benefit was not the object of the payment but merely a consequential and incidental effect of the payment.
4. Although the taxpayer's subjective intentions are determinative, these are not limited to the conscious motives which were in his mind at the time of the payment. Some consequences are so inevitably and inextricably involved in the payment that unless merely incidental they must be taken to be a purpose for which the payment was made.
To these propositions I would add one more. The question does not involve an inquiry of the taxpayer whether he consciously intended to obtain a trade or personal advantage by the payment. The primary inquiry is to ascertain what was the particular object of the taxpayer in making the payment. Once that is ascertained, its characterisation as a trade or private purpose is in my opinion a matter for the commissioners, not for the taxpayer. Thus in Mallalieu v Drummond the primary question was not whether Miss Mallalieu intended her expenditure on clothes to serve exclusively a professional purpose or partly a professional and partly a private purpose; but whether it was intended not only to enable her to comply with the requirements of the Bar Council when appearing as a barrister in court but also to preserve warmth and decency.
I should also refer to the following passage from Mallalieu v Drummond TAX[1983] BTC 380 at p. 383:
The words in the paragraph "expended for the purposes of the trade, profession or vocation" mean in my opinion "expended to serve the purposes of the trade, profession or vocation"; or as elaborated byLord Davey in Strong & Co of Romsey Ltd v Woodifield ELRWLR[1906] AC 448 at p. 453 "for the purpose of enabling a person to carry on and earn profits in the trade etc." The particular words emphasised do not refer to "the purposes" of the taxpayer as some of the cases appear to suggest (as an example see the report of this case in [1983] 1 WLR 252 at p. 256). They refer to "the purposes" of the business which is a different concept although the "purposes" (i.e. the intentions or objects) of the taxpayer are fundamental to the application of the paragraph.
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The object of the taxpayer in making the expenditure must be distinguished from the effect of the expenditure. An expenditure may be made exclusively to serve the purposes of the business, but it may have a private advantage. The existence of that private advantage does not necessarily preclude the exclusivity of the business purposes. For example, a medical consultant has a friend in the South of France who is also his patient. He flies to the South of France for a week, staying in the home of his friend and attending professionally upon him. He seeks to recover the cost of his air fare. The question of fact will be whether the journey was undertaken solely to serve the purposes of the medical practice. This will be judged in the light of the taxpayer's object in making the journey. The question will be answered by considering whether the stay in the South of France was a reason, however subordinate, for undertaking the journey, or was not a reason but only the effect. If a week's stay on the Riviera was not an object of the...
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