England and Wales High Court (Chancery Division) Decisions

IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION

		Royal Courts of Justice Strand, London, WC2A 2LL
		25th January 2002

Mr Justice Patten :

Introduction and background

1. This is an appeal by the Crown by way of case stated against a decision of the General Commissioners for the King's Lynn Division of 16^th July 2001. The Commissioners decided that the taxpayer, Mr. Keith Evans, was entitled to deduct for the purposes of determining his liability to income tax for the years of assessment 1997/8 and 1998/9 the expenses incurred by him in travelling to and from Leeds and of maintaining an office in part of his home in King's Lynn.
2. The facts as found by the Commissioners are set out in paragraphs 5 and 6 of the Case Stated as follows:

"(a) Mr. Evans is a Civil Servant who works for the Central Adjudication Services which is an Executive Office of the Department of Social Security.

He worked in King's Lynn until June 1990 and was then employed on detached duty terms at Southampton. By June 1991, due to insufficient further suitable volunteers to go to Southampton, it was decided to transfer the work to Leeds. Mr. Evans then had the option of moving house with financial assistance from his employer but his family circumstances dictated that he continued to live in King's Lynn, so he travelled to and from Leeds and stayed there overnight two or three times a week.

(b) For the first five years of working in Leeds, Mr. Evans received an allowance from his employer towards his travelling and subsistence costs.

(c) A few months before that five-year period came to an end, the employer introduced a Homeworking scheme, giving employees the option to work from home.

(d) When the five year period ended in June 1996, Mr. Evans decided to continue with his present job in Leeds and to work from home, rather than seek an alternative job nearer King's Lynn.

(e) Mr. Evans then travelled the 135 miles each way journey to Leeds once a week. Under the terms of the employer's Homeworking scheme, Mr. Evans did not receive any financial assistance towards his travel costs, or towards the cost of using part of his home as an office.

Mr. Evans' involvement in the Homeworking Scheme ended on 25^th March 1999.

(f) Mr. Evans made a claim for the expenses of travelling to Leeds, and for the use of part of his home as an office for the year 1996/7. That claim was contested by the Inland Revenue and the matter was heard by the General Commissioners for the Division of King's Lynn on 18^th January 2000, when Mr. Evans' claim was upheld.

(g) Since then, Mr. Evans has completed Tax Returns for the years 1997/98 and 1998/99 and has claimed similar expenses for those years in the amounts of £4,153.00 and £3,874.00 respectively.

The Inland Revenue made enquiries into both those Returns which resulted in Revenue Amendments being made to Mr. Evans' self-assessments to disallow the claim for expenses.

Mr. Evans has appealed against those amendments.

6. In addition to the facts agreed by the parties, and as a result of oral evidence and documentary evidence adduced before us, we found, as a fact, that the Respondent had two places of work, one his home in King's Lynn and the other at his employer's office in Leeds. We found that his home in King's Lynn was his permanent place of work. For the avoidance of any doubt, we did not find that the Leeds office was his permanent place of work."

3. The facts summarised in paragraph 5 were contained in an agreed statement of facts submitted to the Commissioners by the parties. In addition Mr. Evans submitted to the Commissioners that the adoption of the Homeworking scheme had enabled his employers, the CAS, to rationalise their office accommodation in Leeds by freeing much needed space for other employees. Once an employee like the taxpayer opted for the Homeworking scheme he lost his office allocation in Leeds and was therefore required to provide his own office facilities at home. The change in working procedures effected by the scheme is not however irreversible. Either the employer or the Defendant may terminate the Homeworking agreement on giving one month's notice in which case the employee will be re-accommodated in Leeds. The scheme is an option available to approved employees. It is not compulsory. This is made clear by the CAS policy statement on homeworking which says this:

"1. Homeworking is an arrangement where full and part-time staff, with the agreement of management, have their home as their main work place. This principle is wholly endorsed by the CAS Management Board.

2. Homeworking can be an effective way of discharging CAS business. Homeworking supports CAS's equal opportunities policies. It acknowledges that staff have varying family or other responsibilities. Also, Homeworking can enhance individual contributions to CAS's work in general.

3. Homeworking is potentially available to any member of staff. However, no one is obliged to participate in the scheme and some may find that it does not suit them. Agreement to commence Homeworking must be endorsed by line managers and approved by the Grade 7 who may refuse a request where any individual member of staff is felt to be unsuitable; where it is not practicable for an individual to undertake a particular range of work at home, where business needs would not be met; related resources are not available, or where health and safety considerations are not met.

4. Staff who work from home on an ad hoc or regular basis (say one or two days a week) are not regarded as Homeworkers for the purpose of this policy statement. Existing flexible arrangements will operate through agreement with line managers."

4. If the CAS agrees to an employee working at home it provides him with the necessary equipment including a suitable PC which remains the property of the CAS. The specified requirements of the Homeworking scheme deal, inter alia, with the accommodation which the employee needs to have at home and the arrangements which can be made for forwarding to him post. These are set out in paragraphs 2.1 and 2.6 of the printed scheme in the following terms:

"2.1 It is not essential to have a separate room to work in but for reasons of security and health and safety – apart from personal convenience – it may be best to use one particular room, perhaps a spare bedroom, which could double as an office or a workstation. If it is not practicable to use a separate room, it is desirable to have a designated work area, which will be the working environment, with equipment ready for use.

2.6 The main options are:

Post being forwarded from the office;

Collecting post on days in the office;

The use of Fax for urgent material."

5. Mr. Evans told me that he had agreed with the CAS that he would attend their offices in Leeds once a week in order to deliver the work which he had done and to collect new work for the forthcoming week. Whilst there he could also download information from a database via a PC with a modem which was not a facility he had at home. He would be available to work in Leeds for the remainder of that day.

Travel expenses

6. In order to be an allowable expense under Schedule E the cost of travelling to and from Leeds claimed by the taxpayer in this case must satisfy the conditions specified in s.198(1) of the Income and Corporation Taxes Act 1988. This provides that:

"198. (1) 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 of keeping and maintaining a horse to enable him to perform those duties, or otherwise 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."

For the year of assessment 1998/9 these provisions have been amended so as to read as follows:

"198. (1) If the holder of an office or employment is obliged to incur and defray out of the emoluments of the office or employment -

(a) qualifying travelling expenses, or

(b) any amount (other than qualifying travelling expenses) expended wholly, exclusively and necessarily in the performance of the duties of the office or employment,

there may be deducted from the emoluments to be assessed the amount so incurred and defrayed.

(1A) "Qualifying travelling expenses" means-

(a) amounts necessarily expended on travelling in the performance of the duties of the office or employment, or

(b) other expenses of travelling which-

(i) are attributable to the necessary attendance at any place of the holder of the office or employment in the performance of the duties of the office or employment, and

(ii) are not expenses of ordinary commuting or private travel.

What is ordinary commuting or private travel for this purpose is defined in Schedule 12A."

"Ordinary commuting" in s.198 (1A)(b)(ii) is defined in Schedule 12A to the 1988 Act. The relevant parts of that schedule provide as follows:

"2(1) "Ordinary commuting" means travel between-

(a) the employee's home, or

(b) a place that is not a workplace in relation to the employment,

and a place which is a permanent workplace in relation to the

employment.

(2) "Private travel" means travel between-

(a) the employee's home and a place that is not a workplace in relation to the employment, or

(b) between two places neither of which is a workplace in relation to the employment.

(3) In sub-paragraphs 1(b) and (2) "workplace" means a place at which the employee's attendance is necessary in the performance of the duties of the employment.

3. Travel between any two places that is for practical purposes substantially ordinary commuting or private travel is treated as ordinary commuting or private travel.

Permanent and temporary workplaces

4. For the purposes of paragraph 2, subject to the following provisions of this Schedule-

"permanent workplace" means a place which the employee regularly attends in the performance of the duties of the employment and which is not a temporary workplace; and

"temporary workplace" means a place which the employee attends in the performance of the duties of the employment for the purpose of performing a task of limited duration or for some other temporary purpose.

The 24 month rule and fixed term appointments

5(1) A place is not regarded as a temporary workplace if the employee's attendance is in the course of a period of continuous work at that place-

(a) lasting more than 24 months, or

(b) comprising all or almost all of the periods for which the employee is likely to hold the employment,

or if the employee's attendance is at a time when it is reasonable to assume that it will be in the course of such a period.

(2) A "period of continuous work" at a place means a period over which, looking at the whole period and considering all the duties of the employment and the duties of the employment fall to be performed to a significant extent at that place

(3) An actual or contemplated modification of the place at which the duties of the employment fall to be performed is disregarded for the purposes of this paragraph if it does not have, or would not have, any substantial effect on the employee's journey, or expenses of travelling, to and from the place where the duties fall to be performed."

7. It was presumably with these provisions in mind that the General Commissioners found that the Leeds office was not the taxpayer's permanent place of work.
8. I turn first to the 1997/98 year of assessment. In its unamended form s.198(1) lays down as an essential requirement that the employee should be "necessarily obliged" to incur the travel expenses in the performance of the duties of his employment. This is in contrast to the position under Schedule D which merely requires that the expenditure should have been wholly and exclusively laid out or expended for the purposes of the trade, profession or vocation in question: see ICTA 1988 s.74.
9. The strictness of the test under Schedule E was recognised by the House of Lords in the case of Ricketts v Colquhoun [1926] AC1 which was concerned with a claim by a barrister residing and practising in London to deduct from the amount of the emoluments of his office as Recorder of Portsmouth the cost of travelling to and from Portsmouth and the hotel expenses incurred whilst staying there. There was no doubt that these expenses had to be incurred in order for the taxpayer to carry out his duties as Recorder. Living and working, as he did, in London he had to travel and stay there as and when he performed those duties. But that was not sufficient to satisfy the condition that the expenses should have been necessarily incurred in the performance of the duties of his office as Recorder. In his speech (at p.4) Viscount Cave LC put the matter in this way:

"In order that they may be deductible under this rule from an assessment under Sch.E, they must be expenses which the holder of an office is necessarily obliged to incur – that is to say, obliged by the very fact that he holds the office and has to perform its duties – and they must be incurred in – that is, in the course of – the performance of those duties.

The expenses in question in this case do not appear to me to satisfy either test. They are incurred not because the appellant holds the office of Recorder of Portsmouth, but because, living and practising away from Portsmouth, he must travel to that place before he can begin to perform his duties as Recorder and, having concluded those duties, desires to return home. They are incurred, not in the course of performing his duties, but partly before he enters upon them, and partly after he has fulfilled them. No doubt the rule contemplates that the holder of an office may have to travel in the performance of his duties, and there are offices of which the duties have to be performed in several places in succession, so that the holder of them must necessarily travel from one place to another. That was no doubt the case of the minister whose expenses were in question in the case of Jardine v Gillespie. (1) But it rarely, if ever, happens that a Recorder is in that position, and there is no suggestion that any such necessity exists in the case of the present appellant."

10. The essence of this reasoning is that what qualifies as a necessary expense falls to be determined not by reference to the circumstances of the particular individual who holds the office or employment under consideration but rather by reference to the dictates and scope of the office or employment itself. This principle has been qualified in more recent times by the decisions of the House of Lords in Pook v Owen [1970] AC 244 and Taylor v Provan [1975] AC 194 in both of which the taxpayer was held to be entitled to claim as allowable expenses the cost of travelling between his home and place of work. In Pook v Owen the taxpayer was a general practitioner who also held part time appointments as an obstetrician and anaesthetist at a hospital some 15 miles from his home and surgery. The evidence was that he was on standby duty under these appointments at certain times in order to deal with emergencies and was required to be accessible at home by telephone. His responsibility for a patient began on receipt of a call and he travelled from home to the hospital as part of those duties.
11. In Taylor v Provan the taxpayer was a Canadian citizen resident in Canada who was appointed as a director of various English brewery companies with the object of expanding the group by mergers and acquisitions. Most of his duties were performed in Canada but as part of his work he was required to travel to the UK. By a majority of 3 to 2 the costs of his air travel were held to be a deductible expense. The majority speeches go out of their way to stress that the decisions in Pook v Owen and Taylor v Provan are not to be regarded as diluting the strictness of the test laid down by the House in Ricketts v Colquhoun. At p.208 Lord Reid summarised the position in this way:

"In Pook v Owen [1970] AC 244 the findings of the commissioners were also comparatively short. In addition to the facts which I have mentioned they found that there was a scarcity in the area of persons duly qualified to do the work and they found facts with regard to the nature of the work which enabled the majority of this House to hold that Dr. Owen had two places of work: some of his work had to be done at his home in Fishguard and some at the hospital in Haverfordwest. The question whether he had two places of work was the main question at issue.

But I do not see how consistently with the main ratio in Ricketts' case [1926] AC 1 that could in itself be sufficient to justify the decision. And no one suggested that the House was reaching a decision inconsistent with Ricketts. Ricketts decided that if the place where a man resides is his personal choice he cannot claim with regard to expenses made necessary by that personal choice. If the holder of an office or employment has to do part of his work at home the place where he resides is generally still his personal choice. If he could do his home work equally well wherever he lived then I do not see how the mere fact that his home is also a place of work could justify a departure from the Ricketts ratio.

I do not find it easy to discover the ratio decidendi of Pook's case. But that does not diminish the authority of the decision. I am sure that the majority did not intend to decide that in all cases where the employee's contract requires him to work at home he is entitled to deduct travelling expenses between his home and his other place of work. Plainly that would open the door widely for evasion of the rule. There must be something more.

I think that the distinguishing fact in Pook's case was that there was a part time employment and that it was impossible for the employer to fill the post otherwise than by appointing a man with commitments which he would not give up…………….

Turning then to the present case, I think that it is covered by Pook's case. It was not enough that the appellant contracted to do the most of his work in Canada, and would not have taken the employment otherwise. It was impossible for the companies which contracted with him to get the work done by anyone else. That I regard as the essential feature. That made it necessary that these travelling expenses should be incurred, and that is what is required to satisfy the rule."

In his dissenting speech Lord Wilberforce (at p.215) also stressed the limited nature of the exception created by Pook v Owen:

"The relevant word for the purpose of this case is "necessarily". It is a word which has a long history of interpretation and application. It does not mean what the ordinary taxpayer might think it should mean. To do any job, it is necessary to get there: but it is settled law that expenses of travelling to work cannot be deducted against the emoluments of the employment. It is only if the job requires a man to travel that his expenses of that travel can be deducted, i.e. if he is travelling on his work, as distinct from travelling to his work. The most obvious category of jobs of this kind is that of itinerant jobs, such as a commercial traveller. It is as a variant upon this that the concept of two places of work has been introduced: if a man has to travel from one place of work to another place of work, he may deduct the travelling expenses of this travel, because he is travelling on his work, but not those of travelling from either place of work to his home or vice versa. But for this doctrine to apply, he must be required by the nature of the job itself to do the work of the job in two places: the mere fact that he may choose to do part of it in a place separate from that where the job is objectively located is not enough. The case of Pook v Owen [1970] AC 244 brought out this distinction. The basis of the decision of the majority in that case (the minority holding the opposite) was that the nature of the office, or employment, of part-time anaesthetist and obstetrician required the doctor to work partly at his surgery and partly at the hospital. This was what the general commissioners found and the finding was accepted in this House. The words which I used in that case, and which have been invoked on the present appeal, presuppose, as the context would show, that the matter must be viewed objectively and were intended to provide a test whether the office or employment in question so regarded was such as to require that its duties be performed in two places."

12. I mean no disrespect to Mr. Evans when I say that he was obviously not uniquely qualified for the work he did and he accepted that in argument. The highest that he can put his case is that he was under the terms of the Homeworking agreement with the CAS required to visit the office in Leeds to deliver and collect work and to update the information needed for his work. On the authorities this is not enough to make the travelling expenses ones which are necessarily incurred in the performance of those duties. Even accepting that the terms of his contract (whilst the Homeworking agreement subsisted) required him to work four days in King's Lynn and one in Leeds his choice to live in King's Lynn rather than Leeds was historical and is unconnected with any term of his employment. The necessity of travelling to Leeds is dictated by his choice of the place where he lives and not by nature and the terms of the job itself.
13. In paragraph 10(b) of the case stated the reasoning and decision of the General Commissioners on this point is set out in the following terms:

"b) Having found as a fact that the Respondent had two places of work, one his home in King's Lynn and the other at his employer's office in Leeds, the Commissioners determined that the Respondent was obliged in respect of the performance of his work duties to travel from his King's Lynn office to Leeds and therefore the expense of so doing was necessary within the meaning of Section 198 of the Act, as was the expense relating to heating and lighting his King's Lynn office."

It seems to me that the Commissioners considered that the mere fact that Mr. Evans had two places of work (one being his home) and was required to travel between them was sufficient to bring the expenses involved within the provisions of s.198(1). For the reasons set out in the speech of Lord Reid in Taylor v Provan this is not correct as a matter of law. Unless it could be shown either that Mr. Evans was uniquely qualified to do that job or that objectively the job could only be done by working at home in King's Lynn (as opposed to anywhere else) and at the office in Leeds the expenses cannot be said to have been necessarily incurred in the performance of Mr. Evans' duties. The Crown's appeal will therefore be allowed in respect of the travel expenses which relate to the year 1997/8.

14. In relation to the year 1998/9 there is no change in the pattern or terms of the employment which affects its fiscal treatment. The only new factor is the amendment of the legislation so as to broaden the scope of s.198(1). In order to be able to claim the costs of travel as a deductible expense they must satisfy the definition of "qualifying travelling expenses" in s.198(1)(a). Section 198(1)(A) which contains the definition of "qualifying travelling expenses" preserves as one of the two tests for determining whether an expense is allowable the condition that the sums in question should be necessarily expended in travelling in the performance of the duties of the office or employment: see s.198(1A)(a). This is the same test as existed for travelling expenses under s.198(1) in its unamended form and is to be applied in accordance with the decisions of the House of Lords in Ricketts v Colquhoun and Taylor v Provan. The new provision is s.198(1A)(b). To come within this sub-section the travel expenses must still be incurred in the performance of the duties of the office or employment, must be attributable to the necessary attendance of the employee at any place in the performance of those duties and must not be excluded by the definitions of ordinary commuting or private travel which are set out in Schedule 12A.
15. If one reads s.198(1A)(b)(i) for the moment it would appear to cover travel expenses to and from a place of work regardless of the point of departure. The concept of "necessary attendance" at a place in the performance of the duties of an office or employment would cover travel by most employees to their usual place of employment or to any other place which they are required to visit as part of that employment. But the provisions of Schedule 12A indicate that the scope of s.198(1A)(b) is far more limited than that. The definition of "ordinary commuting" in paragraph 2 of Schedule 12A excludes travel between an employee's home or some other place which is not a workplace and the employee's "permanent workplace". The definition of "permanent workplace" in paragraph 4 would therefore exclude the costs of travelling to work in most if not all cases. What however it will allow the employee to claim are the costs of travelling from home to a "temporary workplace" as defined or from one workplace to another workplace provided that attendance at the destination workplace is necessary for the performance of the employee's duties. Travel of this second kind was probably an allowable expense under s.198(1) in its unamended form at least in relation to certain kinds of itinerant employment but the costs of travelling from home directly to a temporary workplace would probably have fallen foul of the decision in Ricketts v Colquhoun that the choice of location of one's home was a matter of personal choice and not a necessity of the office or employment. That objection is no longer available to the Revenue provided that the employee or office holder needs to attend the temporary workplace in order to perform his duties and the workplace is truly a temporary one. To avoid the costs of regular commuting being reclaimed simply because the employment itself is of limited duration special provisions have been included in paragraphs 4 and 5. The effect of these provisions is to exclude travel to a workplace during the course of a limited or fixed term of employment if the place is one at which the duties of the employee are performed to a significant extent: see para 5(2). Commuting to and from work at a temporary job is therefore ordinary commuting because the locus in quo is a "permanent workplace" within paragraph 4 and not a temporary one. Having regard to the provisions of paragraph 5 the definition of a "temporary workplace" is intended to encompass places of work which require the employee's attendance for a limited or temporary purpose within a course of employment (whether of limited duration or otherwise).
16. I have set out these new provisions in some detail in order to show how limited their scope is. But the Crown's appeal in relation to Mr. Evans' travel expenses for 1998/9 turns in the end on a very short point. The travel in question was between his home in King's Lynn and the CAS office in Leeds. The fact that his home was also a "workplace" does not prevent it from being his home. Sub-paragraphs 2(1)(a) and (b) are alternatives. They do not both have to be satisfied for the definition of "ordinary commuting" to apply. The taxpayer cannot therefore succeed in his claim to deduct the cost of travelling to and from Leeds under s.198(1A)(b) unless the office in Leeds is a "temporary workplace" within the meaning of Schedule 12A, paragraph 4. Although the General Commissioners appear to have concluded that Leeds was not a "permanent workplace" Mr. Evans conceded before me that this finding was incorrect. In my judgment he was right to do so. The terms of the Homeworking scheme which he agreed required him to attend the office in Leeds on one day per week. This attendance was both regular and was not "for the purpose of performing a task of limited duration or for some other temporary purpose". Although only one day a week his attendance at Leeds on that day was a permanent and continuing part of his duties as an employee. It subsisted for the entire length of his employment. His travel to and from Leeds did therefore in my judgment amount to "ordinary commuting" within the meaning of s.198(1A)(b)(ii).

Office expenses

17. The test for office expenses is the same for both years of assessment. In its unamended form s.198(1) requires such expenditure to be incurred "wholly, exclusively and necessarily in the performance of" the duties of the office or employment. The same words are repeated in s.198(1)(b) as amended. A common formula for describing the required degree of necessity (which also has an application to travel expenses) is that the activities carried out must be in the performance of the employment and not merely as a necessary preliminary to or preparation for it: see Fitzpatrick v IRC [1994] AC 306 per Lord Templeman at p.314E. A recent example of the application of this principle is the decision of Lightman J in Ansell v Brown [2001] STC 1166.
18. In Roskams v Bennett 32 TC 129 Danckwerts J held that a claim by the district manager of an insurance company for the cost of maintaining an office at home at which he could see clients was not a deductible expense. Although the judgment is somewhat brief it seems clear that the taxpayer in that case failed to persuade the Judge that the maintenance of the office, whilst obviously convenient as a means of seeing clients as part of his employment, was not a necessary part of the performance of his duties. The cost to Mr. Evans of heating and lighting his home in King's Lynn also fails the test. There are I think two reasons for this. Firstly as I have already indicated the Homeworking scheme was optional. Mr. Evans was permitted to work from home but he was not required to do so. He took up the option because for perfectly understandable reasons it was more convenient for him to remain at home for most of the week rather than to travel to Leeds. Working at home was not therefore a necessary incident of his employment. Secondly, however, even if one ignores the optional nature of the scheme it is not a requirement of the Homeworking agreement that the taxpayer should maintain a separate room to work in. In these circumstances the costs of heating and lighting the work space in his home were not wholly, exclusively and necessarily incurred in the performance of his duties. They were expenses which seem to me to be equally attributable to the maintenance of his home as such.

Conclusions

19. The appeal of the Crown will therefore be allowed.