Ian E Baird v David Williams (H M Inspector of Taxes)
| Jurisdiction | England & Wales |
| Judge | MR JUSTICE LADDIE |
| Judgment Date | 11 May 1999 |
| Judgment citation (vLex) | [1999] EWHC J0511-6 |
| Court | Queen's Bench Division (Administrative Court) |
| Docket Number | T864 |
| Date | 11 May 1999 |
[1999] EWHC J0511-6
IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
(REVENUE LIST)
Royal Courts of Justice
Mr Justice Laddie
T864
THE APPELLANT appeared in person.
MR B CARR (instructed by the Solicitor of Inland Revenue, Somerset House, Strand, London WC2R 1LB) appeared on behalf of the Respondent.
( )
This is an appeal by the taxpayer, Mr Ian Edward Baird, against a decision dated 8 May 1997 of the Special Commissioner Mr Shirley in which he found that the appellant was not entitled to a deduction under s 198(1) of the Income and Corporation Taxes Act 1988 in respect of mortgage interest payments for the years 1984/5 to 1988/9 inclusive on properties used, at least in part, for the purposes of the taxpayer's duties as clerk to the General Commissioners of Income Tax.
There is no dispute as to the facts which, so far as material, are as follows. At the material times the taxpayer was, and still is, clerk to the General Commissioners for the four divisions of New Forest West, Poole, Wimborne and New Forest East and that the relevant sources of income are assessable under Case I of Schedule E.
His duties as clerk were authorised under s 3 of the Taxes Management Act 1970 and covered by a statement by the Association of Clerks to the Commissioners of Taxes for Great Britain. In so far as relevant it is also covered in a letter dated 5 February 1993 sent to the taxpayer by the chairman of the association. It is not necessary to set out the contents of the letter of 5 February, but it should be noted that among the schedule of duties of clerks to commissioners the first is stated to be to
"maintain an office and recruit competent secretarial help to assist with administration and typing."
The appeal concerned the taxpayer's claim for a s 198 deduction in respect of mortgage interest paid by him on moneys borrowed to purchase various properties: 12 Leigh Common, Wimborne; 6 Sheppards Field, Wimborne; and 16 Ripon Road, Bournemouth. All of those properties were in Dorset. Those were properties from which the taxpayer carried out, and, in the case of 16 Ripon Road, still carries out, the duties of clerk. The taxpayer has paid the tax and for the purposes of this appeal he seeks repayment. The properties were selected in accordance with what are described as commercial considerations.
According to the agreed statement of facts, the taxpayer is a solicitor and notary public. He is also an Associate of the Institute of Taxation having been admitted as such in 1963. At the time of his first appointment in 1966 he was also a sole practitioner under the name or style of Baird and Fogarty at Christchurch where there were premises, staff and the necessary facilities for the performance of his duties.
In or around 1968 the taxpayer disposed of his practice and undertook consultancy work with local solicitors of a type which would avoid the conflict of interest between his duties as a clerk and his practice as a solicitor which had by then become apparent on several occasions. After the disposal of the practice, the clerking duties were carried out from his private residence at which he was able to provide all necessary facilities.
In or around 1980, as a result of concerns for his health, the taxpayer gave up consultancy, married and moved his home to Malta. Malta remains his home. He has there a substantial home. However, in order to fulfil his duties as clerk he needed to maintain an office and, at least in part, to fulfil that requirement he purchased the three properties to which I have already referred. Leigh Common was bought in June 1982 and sold in November 1985; Sheppards Field was bought in November 1985 and sold in July 1987, and Ripon Road was purchased in December 1987. For a short period between the disposal of the Sheppards Field premises and the purchase of Ripon Road the General Commissioners for the four divisions did not sit and the taxpayer found temporary accommodation with all his books, papers and documents being kept in store.
It is the mortgage interest payments made in respect of the period during which the taxpayer made use of the three properties from June 1982 to date which are in issue.
S 198(1) of the Income and Corporation Taxes Act 1988 , which was the provision applicable at the time, provides (in so far as material):
"If the holder of an office or employment is necessarily obliged to incur and defray out of the emoluments of that office or employment the expenses of travelling in the performance of the duties of the office or employment, or…otherwise to expend money wholly, exclusively and necessarily in the performance of those duties, there may be deducted from the emoluments to be assessed the expenses so necessarily incurred and defrayed."
This section and its predecessors have been considered in numerous cases. Much of that case law and the section itself has recently been reviewed by the House of Lords in Smith v Abbott and Fitzpatrick v IRC [1994] 1 AER 673. Before turning to that case, it is worth noting that the word "necessarily" occurs three times in s 198(1). That emphasises, as do the cases, the narrow ambit of the provision.
Smith v Abbott concerned a s 198 claim by journalists in respect of the expenses which they had incurred in buying and studying newspapers so that they should better carry out their duties to their employers. A number of passages in the speech of Lord Templeman assist one to understand the effect of the section. For convenience I shall not refer to them in the order in which they are to be found in the report. At p 681 Lord Templeman refers to Lomax v Newton [1953] 1 WLR 1123, and in particular quotes with approval the following passage from the judgment of Vaisey J:
"'…the provisions of [r 9 of Sch E (now s 189(1) of the 1970 Act)] are notoriously rigid, narrow and restricted in their operation. In order to satisfy the terms of the rule it must be shown that the expenditure incurred was not only necessarily, but wholly and exclusively, incurred in the performance of the relevant official duties…An expenditure may be `necessary' for the holder of an office without being necessary to him in the performance of the duties of that office. It may be necessary in the performance of those duties without being exclusively referable to those duties. It may, perhaps, be both necessarily and exclusively, but still not wholly, so referable. The words are, indeed, stringent and exacting. Compliance with each and every one of them is obligatory if the benefit of the rule is to be claimed successfully.'"
In my view, this point is illustrated by reference to the cases on travelling expenses referred to by Lord Templeman. At p 681 Lord Templeman said as follows:
"A recorder and an airline pilot must travel from home in order to work; a journalist must read in order to work well. But in both cases, it seems to me, travelling to work and reading are not activities carried out in the performance of the work but activities which are a necessary preliminary to or preparation for performing the work."
At p 683 he said:
" Elwood v Utitz (1964) 42 TC 482 was a case in which travelling expenses from one place of work to another were held to be deductible in contrast to travel expenses from home to a single place of work."
The concept of objective necessity is also made clear in Brown v Bullock [1961] 1 WLR 1095 in which Lord Donovan said:
"The test is not whether the employer imposes the expense, but whether the duties do, in the sense that, irrespective of what the employer may prescribe, the duties cannot be performed without incurring the particular outlay."
Again, that passage was cited with approval by Lord Templeman in Smith v Abbott. In the light of that in Smith v Abbott the deduction was held not to be allowable.
In explaining his decision Lord Templeman, with whom the majority of the House of Lords agreed, said (at p 682):
"Similarly in the present case the journalist is not on duty when he is reading at home and his expenditure on newspapers contains elements of personal choice and benefit. Indeed one of the journalists gave evidence that he was a compulsive buyer...
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