In a case which has wider implications for some self employed individuals, an NHS consultant has lost the latest stage of his case relating to travel costs.
After an enquiry lasting more than seven years and three Tribunal hearings, the First tier Tribunal disallowed the travelling expenses of an NHS consultant doing private work.
The taxpayer specialises in the health care of elderly people and works full time for the Epsom and St Helier NHS Trust, as an employee, at two hospitals in south London and has a permanent NHS office, including a secretary.
The taxpayer holds weekly out-patient sessions at two private hospitals, St Anthony's in Cheam and Parkside in Wimbledon, and his NHS secretary acts as his secretary in his private practice in her spare time.
Typically, referral letters are sent to the taxpayer's office at his home in Sutton, directly or via his NHS office. Headed paper shows his home as the correspondence address, as well as paperwork sent to him by health insurance companies. Telephone calls are made to his home/office, mobile, private secretary or NHS office, while emails are usually sent to his professional email address which he accesses at home.
After receiving a referral, the taxpayer embarks on a fact-finding consultation at one of the sessions at St Anthony's or Parkside, at the patient's home or at an alternative care location. Out-patient consulting rooms are hired for three hours, with other doctors using the rooms on a similarly restricted basis for the rest of the time. At the end of each session, the temporary doctor's name plate is changed on the door. Any test results or other correspondence at either of the private hospitals is placed in a shared pigeon hole. The taxpayer prepares a treatment plan in his home/office and continues to monitor and care for the patient. He reviews patients' conditions during his ward rounds, six evenings a week, at St Anthony's.
The taxpayer's home office contains a desk, chair, medical library, computer, filing cabinet, prescription pads, basic medical equipment, patient clinical records and his own business records. The taxpayer does not examine patients at home.
In the absence of a mileage log, the taxpayer was asked to supply a schedule of his typical weekly journeys to support the 65% business mileage/capital allowance claims. The two regular journeys which had been claimed for became the main source of disagreement:
- mileage between the NHS hospitals and the private hospitals; and
- mileage from home to the private hospitals.
HMRC disputed the validity of both journeys and proposed an alternative business percentage of 6%. Assessments were made to 2003/04-2006/07 and the taxpayer appealed.
During the case six cases were referred to - Newsom v Robertson, Horton v Young, Sargent v Barnes (1978), Powell v Jackman (2004), Manders v HMRC (2010) and Mellor v HMRC (2011) - all related to the travel costs of the self-employed. However, the Tribunal also considered Mallalieu v Drummond.
The taxpayer argued that the business base should be regarded as the place from which a business is run (i.e. home) and not, as HMRC argued, the place where the professional services, or part of them, are carried out.
HMRC argued that the cost of travelling to and from home and a place of work is generally not allowable because the journeys cannot be regarded as wholly and exclusively for business. The motive, object and purpose of the taxpayer's journeys between his home and the private hospitals were to take him to and from home, so the travel could never be wholly and exclusively for the purposes of his profession.
The Tribunal distinguished this case from Horton (a jobbing bricklayer who went to seven different sites in the year):
'Unlike Mr Horton, he has had a pattern of regular and predictable attendance at specific locations other than his home in order to perform significant professional functions as a clinician...his attendance at both locations has involved significant performance of professional functions of his clinical work (consulting with and treating patients) and has followed a pattern which, although it has changed from time to time, has been generally fixed and predictable. It is this pattern of regular and predictable attendance to carry out significant professional functions as more than just a visitor which, in our view, constitutes both Parkside and Saint Antony's as 'places of business' from which he has been carrying on his profession throughout and accordingly negates any suggestion that his profession is "itinerant" (or entirely "home based") within the ratio of Horton as properly understood.'
The Tribunal also placed emphasis on the comments made in Mallalieu v Drummond, when the judge sought to explain the statutory words '...expended for the purposes of the trade...'. In that case, a claim for professional clothing for use in court as a barrister failed:
'...because although she (Ms Mallalieu) had no conscious motive for incurring the expenditure which was not a business motive, the facts were such that there must necessarily have been a non-business motive in her mind as well'.
That case had been:
'...important and helpful in clarifying the distinction between 'object' or 'motive' on the one hand and 'effect' on the other, and in making clear that a court may look behind the conscious motive of a taxpayer where the facts are such that an unconscious object should also be inferred.'
Although the taxpayer did have a place of business at home, the Tribunal stated that there must have been a mixed object in the travelling between home and the private hospitals because part of the object of the journeys must be to maintain a home in a separate location from St Anthony's and Parkside:
'The fact remains that the statutory test, when interpreted in line with Mallalieu, sets a very high bar for deductibility of travel involving a taxpayer's home. The only reported case of the higher courts in which this bar has been cleared is Horton, and we consider the present case falls short of Horton...'
The journeys between the NHS hospitals and the private hospitals were also regarded as non-deductible on the grounds that:
'...the object of the travel is to put the appellant into a position where he can carry on his business away from his place of employment; the travel is not an integral part of the business itself'.
- the taxpayer had places of business at Parkside, St Antony's and his home;
- as the taxpayer had other places of business apart from his home, his travel between home and those other places of business fell outside Horton;
- although the taxpayer's travel between his home and Parkside/St Antony's was between places of business, on general principles no deduction could be allowed in relation to that travel;
- the taxpayer's travel between his places of employment with the NHS and Parkside/St Antony's on the other was undertaken to get him to and from his place of business and not in the course of carrying on his business.
Dr Samadian appealed on three grounds:
- the Tribunal should have held there was only a single base of operation of the private practice and that was the taxpayer's home;
- the Tribunal erred in holding that there was a mixed object in the general pattern of travelling between home and the private hospitals and had applied the tests in Mallalieu too strictly; and
- if the private hospitals were not places of business, they were still places where business was carried on and the analogy with Horton should hold.
The first ground of appeal was quickly dismissed:
'The FTT rightly focused on Dr Samadian having a number of places of business, rather than there being one single location which could be described as the base of his business.
The statutory 'wholly and exclusively' test does not depend upon identifying a single base of business, though in some circumstances it might be useful to do so to assist in the application of the test. The FTT rightly considered that it was not of assistance to do so in the present case. In the context of application of the statutory test in the circumstances of this case, the FTT was entirely correct in adopting the approach it did.'
On the second point, the Upper Tribunal agreed that there is a limit to the circumstances in which Mallalieu can be taken, pointing out that if the pure logic is taken too far then it is difficult to see how the incurring of any expense could satisfy the wholly and exclusively test. The judge goes on:
The 'wholly and exclusively' test is to be applied pragmatically and with regard to practical reality. Private interests may be served by expenditure in the course of a trade or profession, but be so subordinate or peripheral to the main (business) purpose of the expenditure as not to affect the application or prevent the satisfaction of the statutory 'wholly and exclusively' test. On the other hand, as the FTT correctly noted, the decision and reasoning in Mallalieu show that a reasonably strict test of focus on business purposes is applicable, and the language used in the relevant provisions likewise supports that view.'
The judge stated that the Tribunals should take a practical and robust approach and treat like cases alike. Analogies which are relevant should be followed but not analogies which are remote. Looking at the normal travel arrangements of Dr Samadian the judge noted:
'...when Dr Samadian comes to the end of his working day at the private hospitals and makes the journey back to his home, it is in my judgment clear that at least part of his purpose in making the journey is to transport himself to his home to eat, sleep and carry on his private life in the usual way. That may often, in fact, be his sole purpose in making the journey, if he has no intention of carrying out any work in the evening. If he intends to work in his home office in the evening to conduct some part of his private practice, it will still be part of his purpose in making the journey.'
A broadly similar analysis applied to the journeys from home to the private hospitals. In effect, the morning journey neutralised the previous evening's journey. The judge followed the reasoning in Newsom and agreed with the judge in that case, who had noted that it is only when the taxpayer gets to the place of work that he commences activity which is wholly and exclusively for the purpose of his practice.
Having found that the second ground of appeal failed on that point, the judge concluded that the third ground must similarly fall. The NHS hospitals were, in the context of the private practice, non-business locations and so the travel between those hospitals and the private hospitals was not wholly and exclusively for the business.
The Upper Tribunal stated:
'In my judgment, the FTT's decision was correct in all its essentials and this appeal should be dismissed. The FTT correctly applied sensible and coherent categories for treating travel expenses as deductible or non-deductible. I also think the categories applied would attract broad public acceptance. Travel expenses are treated as deductible in relation to itinerant work (such as Dr Samadian's home visits to patients). Travel expenses for journeys between places of business for purely business purposes are treated as deductible. Travel expenses for journeys between home (even where the home is used as place of business) and places of business are treated as non-deductible (other than in very exceptional circumstances of the kind discussed at paragraph  above). Travel expenses for journeys between a location which is not a place of business and a location which is a place of business are not deductible.'
Clearly, these principles do not just affect self-employed consultants. In addition, another case relating to the actor Tim Healy is heading to the Upper Tribunal, this time in relation to subsistence costs, so this whole area is of concern.
Isn't it about time that HMRC drew up new legislation, more along the lines of that for employees, so that the rules are more specific, less subjective and cope with modern working practices?
As I write we don't know if the taxpayer is appealing or have any HMRC comment but certainly one to watch out for!