HM Revenue and Customs v Banerjee (No 2)
| Jurisdiction | England & Wales |
| Judge | Lord Justice Rimer,Lord Justice Pitchford,Lord Justice Hooper |
| Judgment Date | 28 July 2010 |
| Neutral Citation | [2010] EWCA Civ 843 |
| Docket Number | Case No: A3/2009/1484 |
| Court | Court of Appeal (Civil Division) |
| Date | 28 July 2010 |
[2010] EWCA Civ 843.
Court of Appeal (Civil Division).
Hooper, Rimer and Pitchford L JJ.
Sam Grodzinski (instructed by the Solicitor for HM Revenue and Customs) for the appellants.
Michael Ashe QC and Julian Hickey (instructed by Berwin Leighton Paisner LLP) for the respondent.
The following cases were referred to in the judgments:
Blackwell (HMIT) v MillsTAX (1945) 26 TC 468
Brown v Bullock (HMIT)TAXWLRWLR (1961) 40 TC 1; [1961] 1 WLR 1095; [1961] 1 WLR 53
Elwood (HMIT) v UtitzTAXDNI (1965) 42 TC 482; [1966] NI 93
Fitzpatrick v IR Commrs (No. 2)TAXWLRTAX [1994] BTC 66; [1994] 1 WLR 306; 66 TC 407
Humbles v BrooksTAX (1962) 40 TC 500
Lomax v NewtonTAXWLR (1953) 34 TC 558; [1953] 1 WLR 1123
Lupton v PottsTAXWLR (1969) 45 TC 643; [1969] 1 WLR 1749
McKie (HMIT) v WarnerTAXWLR (1961) 40 TC 65; [1961] 1 WLR 1230
R & C Commrs v DecadtUNKTAX [2007] EWHC 1659 (Ch); [2007] BTC 586
Ricketts v Colquhoun (HMIT)TAXELR (1925) 10 TC 118; [1926] AC 1
Simpson v TateTAXELR (1925) 9 TC 314; [1925] 2 KB 214
Snowdon v Charnock (HMIT)SCD (2001) Sp C 282
Income tax - Employment - Deduction - Expenses wholly, exclusively and necessarily incurred in performance of duties of employment - Training post - Contract terms - Taxpayer specialist registrar in dermatology - Contract of employment required attendance at educational courses, conferences and meetings - Taxpayer sought to deduct attendance fees and related expenses - Expenditure incurred in performance of duties of employment because post a training post - Expenditure exclusively incurred because only purpose of attendance contractual requirement - HMRC's appeal dismissed - Income and Corporation Taxes Act 1988, Income and Corporation Taxes Act 1988 section 198s. 198.
This was an appeal by HM Revenue and Customs against a decision ([2009] EWHC 62 (Ch); [2009] BTC 323) that the expenses incurred by a doctor attending training courses had been incurred wholly, exclusively and necessarily in the performance of the duties of her employment within the Income and Corporation Taxes Act 1988, s. 198.
The taxpayer had been employed as a specialist registrar in dermatology between 1996 and 2001. Throughout her period of employment, the written statement of the terms and conditions of her employment included a training clause which required her to continue to hold a national training number. Her training period lasted for five years, and the obligation to hold a national training number continued throughout the training period. As the holder of a national training number, the taxpayer was required to attend meetings, courses and conferences as prescribed by the supervisor and programme director for dermatology specialist registrars.
The taxpayer claimed deductions under ICTA 1988, s. 198 of £2,700, £3,750 and £2,050 for the years 1997/98, 1998/99 and 1999/2000 respectively in respect of training courses. Those amounts were disallowed by HMRC by way of amendments to her self-assessment tax returns. The general commissioners allowed the taxpayer's appeal against that refusal concluding that the expenses were incurred wholly, exclusively and necessarily in the performance of her duties. The High Court dismissed an appeal by HMRC against that decision ([2009] EWHC 62 (Ch); [2009] BTC 323).
HMRC accepted that the expenditure was incurred as a requirement of the taxpayer's employment contract. That, however, was not by itself enough to justify their deduction. It was also essential that the expenses were incurred "in the performance of the duties" of the employment; and whether they were so incurred depended not on the terms of the employment contract by which the employee was engaged but on the nature of the job for which he/she was engaged. The taxpayer's job was that of a qualified clinical dermatologist whose duties were to treat patients. The attendance at the training courses for which she incurred the expenses was not done in the performance of those duties, nor did it enable her to perform them. Such attendance was no more than a means to the end of better performing such duties and of improving her professional skills so as to promote her personal professional development. Secondly, even if the expenditure was to any extent incurred in the performance of the duties, it was not "exclusively" so incurred but must also have served a second, or dual, purpose. It was incurred as part of the taxpayer's training, which could not be an end in itself, but was always a means to an end, which, in the present case, was the improving of the taxpayer's professional skills and the paving of the road to the status of a consultant dermatologist. HMRC submitted that the decision in this case was inconsistent with that in R & C Commrs v Decadt [2007] BTC 586.
Held, dismissing the appeal (by a majority; Pitchford LJ dissenting on the issue of exclusivity):
1. The test was not whether the employer imposed the expense but whether the duties did, in the sense that, irrespective of what the employer might prescribe, the duties could not be performed without incurring the particular outlay. (Brown v Bullock (HMIT) (1961) 40 TC 1 applied.)
2. In the present case, the taxpayer had been employed exclusively for training purposes. That was the whole purpose of the contract. The relevant expenditure was therefore incurred in participating in the training exercises which she was employed to undergo in fulfilment of such purpose and for which participation she was being paid a salary. The judge's interpretation of the findings made by the general commissioners was properly open to him. There was no reason in principle why the taxpayer's successive contracts during the five-year training period could not and should not be characterised as training contracts by which she was employed and paid to undergo both practical and theoretical exercises whose ultimate aim was the generation of a supply of qualified dermatology consultants for the benefit of the National Health Service. Once the contracts were so characterised, there was no reason why the incurring by the taxpayer of the expenses in question was not necessarily incurred in the performance of her duties under those contracts. (Blackwell (HMIT) v Mills (1945) 26 TC 468, Lupton v Potts (1969) 45 TC 643, Fitzpatrick v IR Commrs [1994] BTC 66; 66 TC 407 and Snowdon v Charnock (HMIT) (2001) Sp C 282 distinguished.)
3. It was open to the general commissioners and the judge to find that the taxpayer's sole purpose in attending the courses was to fulfil her employment obligations. She was not motivated by any dual purpose in incurring the expenditure. The reason why the taxpayer had attended the courses and incurred the expense she did in doing so was because she was required to attend them as part of the duties of her employment and because, if she did not do so, her employment would have been terminated. The potential for future professional advancement that she derived from the courses was at most a secondary, or incidental, benefit of her expenditure. Expenditure incurred in the performance of the duties of an employment would not be excluded from a right of deduction merely because it resulted either in another objective necessarily inherent in its incurring or because it incidentally resulted in a personal benefit to the taxpayer. (Elwood (HMIT) v Utitz [1966] NI 93; 42 TC 482 applied.)
4. The difference in outcome between this decision and that of Patten J in R & C Commrs v Decadt [2007] BTC 586 was unfortunate. Such cases were fact-sensitive and the task before the judge in this case was to consider whether the general commissioners were entitled to reach the decision they did on the facts they found. It was likely that a close comparison of the facts of Decadt and the present case would lead to the conclusion that they could not be reconciled. However, the correctness or otherwise of Patten J's decision in Decadt was not before the court on this appeal.
5. (Per Pitchford LJ dissenting) If the expenses were incurred partly in performance of the taxpayer's duties under the contract and partly to advance the taxpayer professionally, then it followed that they were incurred exclusively neither in the former, nor in the latter, but in both. It was not open to the commissioners or the judge to relegate a significant, if secondary, purpose to the point of extinction without a factual basis for doing so. The existence of a right of dismissal was not of itself capable of relegating the taxpayer's secondary purpose to immateriality.
Rimer LJ: Introduction
[1] This appeal by The Commissioners for Her Majesty's Revenue and Customs ("HMRC") is against an order dated 16 June 2009 by which Henderson J dismissed their appeal against the majority decision dated 1 August 2005 of the General Commissioners of Income Tax for the Division of North West London that certain expenses incurred by the respondent, Dr Banerjee, were deductible under Income and Corporation Taxes Act 1988 section 198 subsec-or-para 1section 198(1) of the Income and Corporation Taxes Act 1988 ("ICTA"). Henderson J's judgment is reported at [2009] EWHC 62 (Ch); [2009] BTC 323; [2009] 3 All ER 915; [2010] 1 WLR 800.
[2] Dr Banerjee, now a consultant dermatologist, was during the relevant years of assessment employed as a specialist registrar in dermatology under a succession of NHS employment contracts on terms requiring her to attend various training courses. It was the expenses she incurred in doing so that are in question. HMRC's appeal is said to raise a question of importance, not least because Henderson J's decision is said to stand in apparent contrast to the decision of Patten J (as he then was) in R & C Commrs v DecadtUNK [2007] EWHC 1659 (Ch); [2007] BTC 586, a case with obvious similarities to the present appeal and which Henderson J did not suggest had been decided incorrectly. Mr Sam Grodzinski...
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