Sir Michael Birt, Kt., Bailiff, and Jurats Kerley and Crill
Peter Gregory Zambon
Comptroller of Taxes
The Appellant appeared in person.
Advocate G. G. P. White for the Respondent.
1. This is an appeal from the decision of the Commissioners of Appeal for Tax ("the Commissioners") dated 5th March, 2014, whereby they dismissed the appeal of the appellant from the refusal of the respondent ("the Comptroller") to allow the appellant to deduct certain training and examination costs against his income for the year.
2. On 10th September, 2009, the appellant began an ACCA (Association of Chartered and Certified Accountants) accountancy course with a view to qualifying as an accountant. The course was provided by BPP, a registered provider. The course finished in June 2012.
3. On 18th June, 2010, the appellant began employment with Baker Tilly ("BT"), a firm of accountants. Under the terms of his contract of employment he was employed in the role of 'accountant' albeit that he was not a qualified accountant at that stage.
4. BT agreed to pay for the ACCA course but the appellant's contract of employment stated that, if the employment was terminated by either party within twelve months of any training/examination taking place, the appellant would be required to reimburse BT for the costs which they had incurred.
5. On 3rd June, 2011, the appellant ceased employment with BT and moved to another firm. As a result, the appellant was required to repay his employer the sum of £7,216 ("the Expenses") in relation to training costs and examination fees which BT had paid in connection with the ACCA course during the appellant's employment. The appellant duly paid that sum to BT on 10th June, 2011.
6. In his tax return for 2011, the appellant claimed to deduct the Expenses for the purposes of assessing the level of his income liable to income tax. His income consisted essentially of the salary paid to him by BT for part of the year and the salary paid to him by his successor employer for the remainder of the year. The Comptroller declined to accept that the Expenses were tax deductible and it was that decision against which the appellant appealed to the Commissioners.
7. Article 70 of the Law is the provision which deals with deductions and the two relevant provisions for present purposes are as follows:-
"70. General rules as to deductions not allowable
Subject to the provisions of this Law, in computing the amount of the profits or gains to be charged, 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, employment or vocation;
(f) any capital withdrawn from, or any sum employed or intended to be employed as capital in such trade, profession, employment or vocation......" (emphasis added)
8. Before the Commissioners, the Comptroller argued that one was here concerned with income from 'employment' and that was the relevant aspect of Article 70 (a) to be considered. As it was conceded by the appellant that it was not a condition of his employment with BT that he take or pass the ACCA course, it could not be said that the Expenses were incurred 'wholly and exclusively' for the purposes of the appellant's employment. Furthermore, the Expenses fell within Article 70 (f) as being capital expenditure.
9. The appellant disagreed. He asked rhetorically why professional accountants, employed as accountants, would take accountancy exams save for the purpose of their employment as an accountant? He submitted that the Expenses were therefore wholly and exclusively incurred for the purposes of his employment. If he was wrong on that, he submitted that they were wholly and exclusively laid out for the purposes of a profession. He disagreed with the Comptroller's suggestion that in order to be deemed to be in a profession, a person needed to have been fully qualified at the time of incurring the relevant expenditure.
10. The Commissioners' decision fell into three parts which we would summarise as follows:-
(i) They found for the Comptroller on the first point. In other words, if one was considering Article 70 (a) in relation to employment, the Expenses had not been incurred 'wholly and exclusively' for the purposes of employment because there was no requirement under the contract with BT that the expenses be incurred. They did not accordingly need to address the Comptroller's argument in relation to capital expenditure.
(ii) However, the Commissioners went on to agree with the appellant that the matter could also be considered in relation to a 'profession'. They did not think that this was limited to qualified accountants. The appellant was employed in and participating in a profession having been employed as an 'accountant' carrying out accountancy duties for a firm of accountants. The Commissioners considered that the Expenses, which had been incurred for training costs and exam fees in order to qualify as an accountant, had been 'wholly and exclusively' laid out for the purposes of his profession as an accountant and were therefore prima facie tax deductible.
(iii) However, the Commissioners considered that the appellant was not able to bring himself within this provision because, under the contract of employment, the Expenses had originally been paid for by the employer. The appellant was only obliged to pay for them because his contract came to an end within twelve months of the relevant course. Had he chosen to remain with BT until June 2012 (being twelve months beyond the date of the last examination) then there would have been no liability and the appellant would not have been liable for any repayment. The Commissioners therefore concluded that the Expenses were actually incurred by the appellant because they were a contractual debt, albeit contingent upon his or BT's subsequent actions. It therefore could not be deemed to be 'wholly and exclusively' expended for the purposes of the profession. The appeal was therefore dismissed.
11. The appellant sought only to appeal against the third finding. His initial contentions were therefore narrowly focused. However the Comptroller made it clear that he disagreed with the finding at (ii) and it has therefore become necessary for us to consider the matter more widely. We think the most logical way is to consider first whether the Commissioners were correct in relation to issue (ii). If they were not, issue (iii) never arises and one is then left to consider whether the Commissioners reached the correct decision on issue (i).
12. As can be seen, Article 70 (a) deals with expenditure in relation to income from a trade, a profession, an employment and a vocation and no distinction is made between them. This used to be the position in England. Thus, Rule 3 (a) of the Rules applicable to cases (I) and (II) of Schedule D in the Income Tax Act 1918 provided:-
"In computing the amount of the profits or gains to be charged, no sum shall be deducted in respect of any disbursements or expenses, not being money wholly and exclusively laid out or expended for the purposes of the trade, profession, employment or vocation."
13. Since then the United Kingdom has separated income from employment (currently dealt with at Section 336 Income Tax (Earnings and Pension) Act 2003) from profits arising from a trade or profession, which are dealt with elsewhere. Although in Jersey the provision for deductions continues to be found in the same Article, the Law nevertheless recognises that income from employment is something different from income arising from a trade, profession or vocation. Thus, income from a trade, profession or vocation is dealt with at Article 64 (A) in the following terms:-
"64A - General provision as to period of computation for trade, profession or vocation
Subject to Article 64B to 64E, tax shall be charged in the case of a trade, profession or vocation on the full amount of the balance of the profits or gains of the trade, profession or vocation for the financial period ending in the year of assessment."
Similarly, Article 64C deals with the setting up of a trade, profession or vocation and the establishment of the relevant financial period and accounting date.
14. Conversely, income from employment is dealt with at Article 65 which provides as follows:-
"65 - General provisions as to the period of computation for offices, employments and pensions
(1) Subject to the provisions of Articles 66, 67 and 68, tax shall be charged under case II of Schedule D;.....
(b) In the case of an office or employment, on the full amount of the emoluments of the office or employment received in the year of assessment....".
15. We appreciate that these provisions are concerned essentially with timing but they emphasise that in reality one is dealing with two different types of income. On the one hand there is income from employment; that is charged on the basis of the income earned from the employment during the relevant year of assessment. Conversely, where there is income from a trade, profession or vocation, this arises where someone is carrying on business by way of a trade, profession or vocation and in those cases, the business will no doubt have a financial year and tax is charged by reference to the profits in that financial year which ends in the year of assessment.
16. In our judgment, the four categories in Article 70 (a) are separate and mutually exclusive. One is deriving income from carrying on a trade, from carrying on a profession, from employment or from carrying on a vocation. The first step therefore in deciding what is a permissible deduction under Article 70 (a) is to decide the source of the income. In this case it is undoubtedly income from employment. The appellant was employed by BT and his income came from the salary paid to him by BT. It was a salary paid by reason of his employment. Indeed, that is the section of the income tax return which he completed. Section 2.1 (a) of the tax return specifically deals with income from employment and that is the section which the appellant (correctly) completed.
17. In our judgment, reference to income from a profession is where a person is self-employed and, either alone or in partnership, earns his income from the exercise of his or her profession.
18. We accept of course that accountancy is a profession (as does the Comptroller) but even a qualified accountant is not deriving income from his profession if he is employed as an accountant, whether by a bank, a commercial firm, or a firm of chartered accountants. In each case his income is derived from his employment (albeit as an accountant). It is not derived from the carrying on of a profession. That only applies to those carrying on the business of accountancy and deriving their income therefore by way of profits from the carrying on of the practice rather than by way of salary from their employer. It follows that we disagree with the Commissioners on Issue (ii). The appellant's income was derived from his employment and accordingly Article 70 (a) must be applied in connection with employment.
19. Issue (iii) therefore becomes academic. Nevertheless, because we agree with the appellant in respect of this issue and disagree with the findings of the Commissioners, we think it useful to express our views very briefly in order to assist in any future case.
20. This discussion proceeds on the assumption (with which we have disagreed) that, as found by the Commissioners on issue (ii), the Expenses were prima facie incurred wholly and exclusively for the purposes of the profession.
21. In our judgment, it cannot possibly make any difference whether the appellant had to pay those expenses voluntarily or because he was contractually bound to do so. There are in effect three possible scenarios:-
(i) The appellant might have been in a situation where he had chosen to incur the Expenses and no question arose of the employer paying for them.
(ii) The contract of employment might have stated that the employer would not contribute towards the Expenses and that these were to be paid by the appellant.
(iii) As was the case, the employer might have agreed to pay for them but seek reimbursement should the appellant leave within a certain period of the incurring of the Expenses.
22. In our judgment it does not make any difference which of these three situations was applicable. The fact was that, on the Commissioners' findings, the Expenses were incurred wholly and exclusively for the purposes of the appellant's profession. The question of deductibility will only ever arise if the expenditure was in fact borne by the taxpayer. It matters not whether he had to pay such expenditure because he had chosen to, because the contract said that he should, or because, although initially paid for by the employer, circumstances arose in which he had to reimburse the employer. The fact is that in each case the employee paid the expenditure and he could therefore deduct it from his income if the test of 'wholly and exclusive' was otherwise met.
23. It follows that we respectfully disagree with the reasons given on Issue (iii) by the Commissioners and, had we agreed with the appellant on Issue (ii), we would have allowed this appeal.
24. However, our decision on Issue (ii) means that we must now address Issue (i), namely whether the Expenses were incurred wholly and exclusively for the purposes of the appellant's employment. On this, we agree with the decision of the Commissioners.
25. The appellant argues that the Comptroller (and the Commissioners) have in practice applied the test as it now is in England rather than the wording of the Jersey statute. We agree that the English provision differs from our own statute. Thus section 336 of the 2003 Act provides:-
"(1) The general rule is that a deduction from earnings is allowed for an amount if:-
(a) the employee is obliged to incur and pay it as holder of the employment, and
(b) the amount is incurred wholly, exclusively and necessarily in the performance of the duties of employment."
The appellant refers to the addition of the words "and necessarily" in sub paragraph (b) as well as the provisions of sub paragraph (a). He submits that the effect of the Commissioners' decision is to apply the wording of section 336 rather than the wording of the Article 70 (a).
26. We accept entirely that the wording of section 336 is different and may in some cases lead to a different result. But what must be done in this jurisdiction is to apply Article 70 (a) and to consider whether the expenditure in question was incurred 'wholly and exclusively... for the purposes of the ....employment'.
27. The facts of this case are that the appellant chose to begin the ACCA course before he took up employment with BT. Furthermore, even once he did take up such employment, BT did not require him to undertake or pass the ACCA course. The Expenses were incurred because the appellant had chosen to undertake the course. Quite naturally, he wished to qualify as an accountant. That would place him in a better position not only for his employment with BT but for any future employment. But, given that it was his choice to begin the course and incur the expenditure, we do not see how it can be said that the Expenses were incurred wholly and exclusively for the purposes of his employment.
28. The appellant argues that 'employment' in this context does not mean the particular employment which produced the income against which a deduction is sought. It means employment generally. He contends that the Expenses were incurred to enable him to more easily find employment in the future and were incurred for the purposes of his employment generally as an accountant.
29. We cannot accept that interpretation. What is sought is a deduction in respect of his earnings from his employment with BT. The expenditure must therefore be incurred wholly and exclusively for the purposes of that employment. This is confirmed by the use of the definite article in Article 70 (a). It provides that the money must be expended '....for the purposes of the employment....'. That must mean the employment which produced the income against which a deduction is sought.
30. Our interpretation of the expression 'wholly and exclusively' derives some assistance from English authority. In Strong and Company of Romsey Limited v Woodifield  AC 448, the House of Lords was concerned with section 100 of the Income Tax Act 1842, the relevant part of which read:-
"....no sum shall be set against or deducted from.....such profits or gains.... not being money wholly and exclusively laid out or expended for the purposes of such trade, manufacturer, adventure or concern, or of such profession, employment or vocation....."
It can be seen therefore that the wording of that statute was similar to Article 70 (a) of the Law. As it happens, Strong was concerned with deduction from the profits of a trade, in particular whether damages paid out to compensate a customer of the inn run by Strong who had been injured by a chimney falling on him because of the negligence of Strong's servants, was money wholly and exclusively laid out or expended for the purposes of the trade. The actual result is not of significance for our purposes but Lord Davey explained what the expression meant in words which have regularly been relied upon since then. He said this at 220:-
"I prefer to decide the case upon Rule 1, which applies to profits of trades and also to professions, employments or vocations. I think that the payment of these damages was not money expended 'for the purposes of the trade'. These words are used in other rules, and appear to me to mean for the purpose of enabling a person to carry on and earn profits in the trade etc. I think the disbursements permitted are such as are made for that purpose. It is not enough that the disbursement is made in the course of, or arises out of, or is connected with, the trade or is made out of the profits of the trade. It must be made for the purpose of earning the profits."
31. The appellant referred to the guidance issued by H M Revenue and Customs in connection with whether or not expenses incurred by trading entities are allowable for the purposes of the Income and Corporation Taxes Act 1988, which uses similar wording to that in Article 70 (a). The guidance says this:-
"The legislation disallows any expenditure not incurred wholly and exclusively for the purposes of the trade, profession or vocation. This means that the rule is only satisfied if the taxpayer's sole purpose for incurring the expense is for the purposes of their trade, profession or vocation. If you identify a non-trade purpose then the expenditure is not allowable." (original emphasis)
32. The appellant agreed that one could substitute the word employment in the Jersey context so that an accurate description of the test under Article 70 (a) in relation to employment is as follows:-
"The legislation disallows any expenditure not incurred wholly and exclusively for the purposes of the employment. This means that the rule is only satisfied if the taxpayer's sole purpose for incurring the expense is for the purposes of their employment. If you identify a non-employment purpose then the expenditure is not allowable."
We agree that this is an accurate description of the effect of Article 70 (a) in relation to employment.
33. For the reasons given earlier, we do not consider that the test is satisfied in this case. The Expenses were not incurred solely for the purpose of the appellant's employment with BT. On the contrary, he had chosen to begin the course and incur the expenditure prior to his employment and BT did not require him as a condition of his employment to undertake the course. Indeed, during the course of argument before us, the appellant conceded that, if the reference in Article 70 (a) to 'employment' was to the particular employment with BT rather than to employment generally, he had to accept that the test was not satisfied, as the Expenses were not incurred wholly and exclusively for the purposes of that employment.
34. We should add as a footnote that we were referred to a number of English cases which were factually closer to the present case, but they were all decided in the context of the modern English wording which includes that expenditure which is claimed against income from employment must be incurred 'necessarily' as well as 'wholly and exclusively' for the purposes of employment. We have not therefore found them to be of any assistance.
35. Nevertheless, for the reasons given, we agree with the Commissioners on Issue (i) - It follows that, albeit that we have differed from the Commissioners on Issues (ii) and (iii), our ultimate conclusion is the same and we therefore dismiss this appeal.
Income Tax (Earnings and Pension) Act 2003.
Strong and Company of Romsey Limited v Woodifield  AC 448.
Income Tax Act 1842.
Income and Corporation Taxes Act 1988.