Fitzpatrick v Commissioners of Inland Revenue (No.2)
| Jurisdiction | England & Wales |
| Judgment Date | 15 March 1993 |
| Date | 15 March 1993 |
| Court | Court of Appeal (Civil Division) |
Court of Appeal (Civil division).
Ralph Gibson, Mann and Nolan L JJ.
Alan Moses QC and Nicholas Warren (instructed by the Solicitor of Inland Revenue) for the Crown.
Peter Whiteman QC and Marion Simmons (instructed by Berwin Leighton) for the taxpayers.
The following cases were referred to in the judgment:
Bentleys, Stokes & Lowless v Beeson TAX(HMIT) (1952) 33 TC 491
Brown v Bullock TAX(HMIT) (1961) 40 TC 1
Edwards (HMIT) v Bairstow & Anor ELR[1956] AC 14
Fitzpatrick v IR Commrs and related appeals (No. 2) TAX[1992] BTC 204
Humbles (HMIT) v Brooks TAX(1962) 40 TC 500
Pook (HMIT) v Owen TAX(1969) 45 TC 571
Ricketts v Colquhoun (HMIT) TAX(1925) 10 TC 118
Simpson (HMIT) v Tate TAX(1925) 9 TC 314
Income tax - Schedule E - Relief for expenses - Newspapers and periodicals purchased by journalists - Cost reimbursed by employer - Whether expenditure was money wholly, exclusively and necessarily incurred in performance of duties of the employment - Income and Corporation Taxes Act 1970 section 189Income and Corporation Taxes Act 1970, sec. 189 (replaced by Income and Corporation Taxes Act 1988 section 198Income and Corporation Taxes Act 1988, sec. 198).
These were five appeals against a judgment of Warner J ([1991] BTC 414). The Revenue appealed in four of the cases in which it was held that an allowance given by their employers to cover the cost of newspapers and periodicals incurred by journalists, which they read outside office hours, was deductible from their Income and Corporation Taxes Act 1970 schedule ESch. E income. In the fifth case, the taxpayer, Mr Abbott, appealed from Warner J's decision that, on the facts found by the general commissioners, he was not entitled to the deduction.
The taxpayers were employed by Associated Newspapers on the Daily Mail or the Mail on Sunday. Mr Abbott was a news layout journalist while the other four taxpayers were respectively a staff photographer, a sports reporter, a picture editor and a chief sub-editor. They all bought a number of newspapers and periodicals which they read in the morning before arriving at the newspaper offices and at other times in their spare time. An allowance was made by the employer intended to cover the cost of reading matter bought by the journalists.
The taxpayers were assessed to Income and Corporation Taxes Act 1970 schedule ESch. E tax for the years 1980-81 to 1985-86 (except in the case of one of the taxpayers whose employment started in 1981-82) in respect of the amount of the allowance for newspapers reimbursed by the employer.
The issue on appeal against the assessments was whether, in the case of each taxpayer, the amount of the allowance was deductible as an expenditure incurred "wholly, exclusively and necessarily in the performance of" the duties of the employment within the meaning of theIncome and Corporation Taxes Act 1970 section 189 subsec-or-para (1)Income and Corporation Taxes Act 1970, sec. 189(1).
It was common ground that the amount of the allowance was correctly assessed as an emolument of the taxpayers' employment and that each taxpayer had spent on newspapers and periodicals an amount at least equal to the allowance.
The general commissioners for the City of London heard the five cases together giving five separate decisions. In each case, except that of Mr Abbott, they included a finding of fact that they accepted evidence given by the deputy managing editor of the Daily Mail that the reading of newspapers and periodicals was a necessary part of the duties of each taxpayer and was not merely required to qualify him, or to maintain his qualifications, for the work. They concluded in all five cases that the reading of newspapers and periodicals outside the newspaper offices was done "in the performance of" the duties of the respective employments notwithstanding that it was done at home and outside the hours of attendance at the office, and the money was in each case spent wholly, exclusively and necessarily in the performance of the duties of the employment.
The commissioners found as a fact in all the cases except Mr Abbott's that it was virtually, if not explicitly, a term of the taxpayers' contracts of employment that they should read newspapers outside office hours and that such a finding was conclusive as to the duties of the employment.
Both the Revenue and the taxpayers accepted before the Court of Appeal that all five cases stood or fell together.
The Revenue contended that the judge had erred in holding that the commissioners had found as a fact that the reading of newspapers was one of the duties of the taxpayers' employment. Their primary contention was that the expenditure in issue was not incurred in "the performance of" the duties of the various employments. The duties, as identified by the commissioners, did not include the reading of newspapers and periodicals outside office hours. That reading was merely preparatory to the performance of the duties but not part of them. Further, on the facts found by the commissioners, the expenditure was not necessary in the sense that the duties could not be performed by any holder of the employment without incurring it. Finally, the Revenue said that the expenditure was not incurred "wholly and exclusively" in the performance of the duties because it was at least in part incurred for the purpose of qualifying the taxpayers, or to keep them qualified, to do the work.
Held, allowing Mr Abbott's appeal and dismissing the Revenue's appeals:
1. The general commissioners' conclusion followed reasonably from their primary findings of fact. Any other conclusion would ignore the short-lived and almost ephemeral nature of the benefit which they thus acquired. They were studying news, not history. The purpose which their reading was designed to serve and did serve was the production of the next edition of the Daily Mail or the Mail on Sunday. In those circumstances, their reading constituted preparation for a particular assignment, not merely to prepare or qualify them for performing the duties of the employment. The commissioners had formed the view that the five taxpayers began to perform their daily duties when they read the newspapers and periodicals which they had selected to provide some of the raw material for the contribution which they would make towards the finished product later in the day. That was a sensible and natural appraisal of what was a continuous process, and one which conformed fully with Income and Corporation Taxes Act 1970 section 189 subsec-or-para (1)sec. 189(1).
2. The test to be applied in deciding whether expenses were "necessarily" incurred in the performance of the duties of the employment was to ask whether the expenses were dictated by the nature of the employment: what the employee had to do as a practical matter in performing the work, as distinct from the personal choice of the employee. The obligations imposed by the contract of employment were not decisive, although the contractual terms might be highly relevant. Judged by that yardstick, the commissioners' conclusion that each of the taxpayers was necessarily obliged to incur the expense of buying newspapers was justified by their primary findings of fact.
3. The commissioners' conclusion that the sole object of the taxpayers in reading the relevant material was the performance of their duties was fully justified.
By a notice of appeal dated 25 November 1991 the Inland Revenue appealed against the judgment of Warner J that an allowance paid to four journalists by their employer to cover the cost of newspapers and periodicals which they bought to read outside office hours was wholly, exclusively and necessarily incurred in the performance of the duties of the employment. The grounds of the appeal were:
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(2) that the judge erred in law in holding that the general commissioners had found as a fact that the relevant reading was part of or inherent in the performance of the duties of the employment within the Income and Corporation Taxes Act 1970 section 189 subsec-or-para (1)Income and Corporation Taxes Act 1970, sec. 189(1);
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(3) that the judge erred in holding that the general commissioners findings were sufficient to justify their conclusion that the relevant expenditure had been "necessarily" incurred; and
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(4) the judge was wrong to hold that the relevant expenditure was "wholly and exclusively" incurred in the performance of the duties of the employment.
The taxpayer, Mr Abbott, appealed against Warner J's decision that, in his case, similar expenditure was not incurred in the performance of the duties of the employment.
Nolan LJ: The taxpayers involved in these appeals are journalists employed by Associated Newspapers Ltd. Four of them work for the Daily Mail. They are: Mr P J Abbott, a news layout journalist; Mr K P Holt, a staff photographer; Mr B S Scovell, a sports reporter specialising in cricket and football; and Mr T R Shuttleworth, who was at first a news sub-editor and subsequently an assistant chief sub-editor. The fifth is Mr Gary Woodhouse, who is picture editor of the Mail on Sunday.
In each of the years of assessment under appeal each of them received from Associated Newspapers Ltd an allowance in reimbursement of the cost of newspapers and periodicals which he bought. It is common ground between the parties in each case:
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(2) that the amount of the allowance was correctly included in the taxpayer's assessment under Income and Corporation Taxes Act 1970 schedule ESch. E as an assessable emolument, and
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(3) that he had spent on newspapers and periodicals an amount at least equal to the amount of the allowance.
The issue in each case was whether the amount thus spent by the taxpayer and reimbursed by Associated Newspapers Ltd was deductible in computing his taxable emoluments under Income and Corporation Taxes Act 1970...
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