White
| Jurisdiction | UK Non-devolved |
| Judgment Date | 20 February 2014 |
| Neutral Citation | [2014] UKFTT 214 (TC) |
| Date | 20 February 2014 |
| Court | First Tier Tribunal (Tax Chamber) |
[2014] UKFTT 214 (TC)
Judge Greg Sinfield, Mrs Shameem Akhtar
Peter Clarke of Clarke & Co, Accountants and Practitioners in Revenue Law, for the Appellant
David Linneker, officer of HM Revenue and Customs, for the Respondents
Income tax - Self-employed flying instructor with office at home - Travel between home and two airfields where he gave flying lessons - Deductibility of travel expenses and telephone expenses - Whether travel expenses incurred wholly and exclusively for the purpose of his self-employment - No - Whether amounts assessed in relation to telephone expenses were excessive - No - Whether discovery assessments were valid - Yes - Appeal dismissed
The First-tier Tribunal dismissed the taxpayer's appeal against HMRC's decision to disallow his travel costs from his home, where he operated his business, and the airports from which he gave flying lessons and examined pilots, on the basis that the costs were not incurred wholly and exclusively for the purposes of his business. The Tribunal also ruled that HMRC's disallowance of some of the taxpayer's telephone expenses was not excessive and discovery assessments were properly made.
The taxpayer (Mr White) is a self-employed senior flying instructor and examiner. He operates his business from home and gives flying lessons and examines pilots at two airports. Mr White does not have a dedicated office at home or a separate business telephone line, but uses a laptop in any one of a number of rooms in his house. He also keeps his business records as well as equipment such as charts and navigation equipment and reads new Civil Aviation Authority (CAA) Material to keep up to date as an examiner at home. Mr White's home address is registered with the CAA and this is where they contact him. People wanting to engage Mr White call his home telephone number and this is the number which Mr White uses to call the airports to check weather conditions and to speak to students prior to a lesson to discuss flying conditions and plan the flight. Mr White can teach at numerous airports throughout the UK, but almost invariably he just uses two airports. Mr White meets students at the relevant airport and then performs any debrief at the airport, but if he examines a pilot he completes the report to the CAA at home. Mr White's 2006-07 tax return included a claim for the travel costs he incurred driving between his home and the airports and certain home telephone costs. HMRC disallowed the travel expenses, concluding that Mr White's place of work was the airports and therefore the costs of travelling between home and these places of work were not allowed on the ground that they were not incurred wholly and exclusively for the purposes of his business. HMRC also reduced the telephone expenses claimed on the ground that there was no evidence to support the claim. HMRC decided that as Mr White made 48 flights in the year it would be reasonable to claim for 100 calls (being 50 calls to the airport and 50 calls to students) and at an estimate of £1 per call and therefore restricted the telephone costs to £100. HMRC subsequently issued discovery assessments for other years estimating the disallowances for travel and telephone expenses based on the findings for 2006-07 and working back using the retail price index. Mr White appealed against the disallowance of his travel expenses, the partial disallowance of his telephone expenses and also submitted that HMRC were not entitled to raise discovery assessments because a discovery must be of a finite amount.
In relation to the travel expenses the First-tier Tribunal referred to the various decisions relating to business travel expenses, including the recent Upper Tribunal decision of Samadian v R & C Commrs[2014] BTC 504 and also referred to Mallalieu v Drummond[1983] BTC 380 on the wider issue of "wholly and exclusively". The Tribunal decided that Mr White's situation was much closer to that of Dr Samadian (who was not allowed to deduct the travel expenses he incurred between his office at home and the private hospitals he visited) than to that of Mr Horton (in Horton v Young(1971) 47 TC 60) (a bricklayer who was found to be itinerant and allowed to deduct the travel expenses he incurred between his home and the building sites he worked on), finding him to have places of business at his home and at the airports because he attended them regularly and predictably. However, the Tribunal did not reach their decision to disallow Mr White's travel expenses on this basis but on the basis of the statutory test, finding that the travel expenses for journeys between Mr White's home and the airports "were not incurred wholly and exclusively for the purposes of his profession as a flying instructor and examiner but also as a result of his decision to live away from the airports where he carried on his business".
With regard to the telephone expenses the Tribunal found that in the absence of any contrary evidence, such as telephone records, Mr White had failed to establish, on the balance of probabilities, that the adjustments made by HMRC were excessive. The Tribunal also ruled that the discovery assessments were properly made as there was nothing in or with Mr White's tax return to alert HMRC to the nature of the expenses claimed and therefore HMRC only became aware of these when enquiries were made into Mr White's 2006-07 tax return. Mr White's appeal was therefore dismissed.
This is the first case we have seen regarding business travel expenses since the Upper Tribunal decision in Samadian earlier this year and in fact the decision in this case was delayed pending the result of the Samadian case. Following the result in the Samadian case and given the regular and predictable nature of the taxpayer's visits to the airports it is not surprising that the Tribunal ruled in favour of HMRC with regard to the travel expenses.
As an aside, during the appeal the taxpayer's representative submitted that the burden of proof in the appeal was on HMRC. The Tribunal disagreed finding that it has been settled law for almost 90 years that the burden is on the taxpayer, as the person asserting that he has been overcharged by an assessment, to show that the sums charged are excessive.
For commentary on the deductibility of travel expenses against business profits, see the CCH Tax Reporter at 216-000 and for a more general discussion on the "wholly and exclusively" rule see 208-000ff..
[1]This is an appeal by Noel White, a self-employed flying instructor and examiner. Mr White gave flying lessons and conducted examinations at two airports. Mr White claimed the cost of travel by car between his home and the airports in his tax return for 2006-07. He also claimed certain expenses relating to his home telephone.
[2]The Respondents ("HMRC") decided that Mr White was not entitled to deduct his travel expenses, ie the costs of driving his car and associated capital allowances, on the ground that they were not wholly and exclusively incurred for the purposes of his business. HMRC also reduced the telephone expenses claimed on the ground that Mr White had not provided any evidence to support his claim to use the telephone for business purposes.
[3]On 30 April 2009, HMRC issued discovery assessments and a closure notice assessing Mr White for the disallowed expenses for 2003-04, 2004-05, 2005-06 and 2006-07. On 4 April 2013, HMRC issued a discovery assessment in respect of travel expenses, and associated capital allowances, claimed by Mr White in his tax return for 2008-09. The total amount thus assessed is £9,434.79. Mr White appealed against the assessments and closure notice.
[4]On 4 June 2009, HMRC issued a Notice of Enquiry under section 9Asection 9A Taxes Management Act 1970 ("TMA") and an Information Notice under Finance Act 2008Schedule 36 Finance Act 2008 in relation to the tax year ended 5 April 2008. Mr White appealed against the notices on the ground that they were unlawful. At the hearing of the appeal, Mr Peter Clarke, who appeared for Mr White, withdrew the appeals against the notices. Mr Clarke was careful to say that he did not concede that the notices were lawful but felt that they added little to the proceedings, involved complex matters of tax law and could lead to the appeals being adjourned part heard. Accordingly, we do not consider the issue of the lawfulness of the notices further in this decision.
[5]For the reasons set out below, we have held that Mr White was not entitled to deduct the travel expenses as they were not incurred wholly and exclusively for the purposes of his trade, profession or vocation. We have also found that the closure notice and assessments disallowing some of the telephone expenses claimed by Mr White were not excessive. Finally, we concluded that the discovery assessments were properly made. Accordingly, our decision is that Mr White's appeal is dismissed.
[6]During the period under consideration in this appeal, the legislation governing the deduction of expenses for income tax purposes changed. Until 5 April 2005, section 74 subsec-or-para 1Section 74(1)(a) of the Income and Corporation Taxes Act 1988 ("ICTA") provided as follows:
74 General rules as to deductions not allowable
(1) Subject to the provisions of the Tax Acts, in computing the amount of the profits to be charged under Case I or Case II of Schedule D, no sum shall be deducted in respect of -
(a) any disbursements or expenses, not being money wholly and exclusively laid out or expended for the purposes of the trade, profession or vocation;
[7]For the tax year 2005-06 and subsequent years section 34(1)(a) of the Income Tax (Trading and Other Income) Act 2005 ("ITTOIA") applied for income tax purposes and was as follows:
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34 Expenses not wholly and exclusively for trade and unconnected losses
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(2) In calculating the profits of a trade, no deduction is allowed for-
(a) expenses not...
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Jones
...Finally, we note a decision of the FTT on the issue of travel expenses taken subsequent to the UT's decision in Samadian: in White TAX[2014] TC 03354, the FTT found that the travel expenses of a self-employed flying instructor for journeys between his home (where he operated his business) a......