[2010] UKFTT 86 (TC)

TC00397          

               Appeal number TC/2009/12484

INCOME TAX – EMPLOYMENT INCOME – EXPENSES – television newsreader – expenses for purchase and laundering of professional clothing for studio and for professional hairdo and colouring – whether incurred “wholly, exclusively and necessarily in the performance of the duties of the employment” (ITEPA s.336(1)) – no – expenses for purchase of professional clothing for studio – whether “plant or machinery ... necessarily provided for use in the performance of the duties of the employment or office” (CAA s.36(1)) – no – Appeal dismissed

FIRST-TIER TRIBUNAL

TAX

                                                        MS SIAN WILLIAMS                          Appellant

                                                                      - and -

                                 THE COMMISSIONERS FOR HER MAJESTY’S

                                                   REVENUE AND CUSTOMS               Respondents

TRIBUNAL: Dr Christopher Staker (Judge)

Mr Julian Sims (Member)

Sitting in public in London on 19 January 2010

 Mr M Weissbraun for the Appellant

 Mr C Shea HMRC Presenting Officer for the Respondents.

© CROWN COPYRIGHT 2010

DECISION

Introduction

1.     The Appellant is employed by the BBC as a television newsreader. In her 2004/05 tax return, she claimed certain deductions from her earnings in respect of "travel and subsistence costs", and certain deductions in respect of "other expenses and capital allowances". Of these, the following claimed items remain in dispute:

Professional hairdo and colouring              £975

Professional clothing for studio               £3,231

Laundry of professional clothes                  £325

2.     The Appellant maintains that these expenses are allowable expenses under s.336 of the Income Tax (Earnings and Pensions) Act 2003 (“ITEPA”). She in the alternative maintains that the amount of £3,231 expended on clothing qualifies for plant and machinery capital allowances under s.36 of the Capital Allowances Act 2001 (“CAA”).  HMRC disputes this.

The relevant legislation

3.     Section 336(1) ITEPA 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 the employment.

4.     Section 36(1) CAA provides that:

(1)   Where the qualifying activity consists of an employment or office—

(a)   expenditure on the provision of a mechanically propelled road vehicle, or a cycle, is not qualifying expenditure, and

(b)  other expenditure is qualifying expenditure only if the plant or machinery is necessarily provided for use in the performance of the duties of the employment or office.

The hearing

5.     The Appellant did not attend the hearing, and was represented by Mr Weissbraun. HMRC was represented by Mr Shea, who was accompanied by an assistant and an observer.  Mr Shea produced two bundles of documents, a skeleton argument and a copy of his speaking notes.  By agreement between the parties, HMRC presented its case first. 

Evidence and submissions of the parties

6.     For HMRC, Mr Shea submitted amongst other matters as follows.

7.     Common law and s.56 of the Taxes Management Act 1970 place the onus of proof on the Appellant, and the standard of proof is the ordinary civil standard of balance of probabilities.

8.     As regards s.336(1) ITEPA, the present case is similar to Hillyer v. Leeke [1976] STC 490, 51 TC 90 and Mallalieu v. Drummond (HMIT) [1983] 2 AC 861; (1983) 57 TC 330; [1983] STC 665.  Although neither of these cases refers specifically to television presenters, they set out a clear principle applicable to all taxpayers.

9.     The clothing in this case is ordinary everyday clothing, there is nothing about the clothing that restricts the use of any particular outfit only to work, and the Appellant has not established that there is any contractual requirement for the expenditure.

10.  It is not enough for the expense to be relevant to the job, or to be incurred in connection with the duties of the job, or for the expense to put the employee in a position to start work. In this case, the expenditure was not incurred whilst carrying out the duties. The BBC employ the Appellant to appear on television as a newsreader, and she is not performing her duties when her clothes are being cleaned or when she is sitting in a hairdressing salon. It is impossible to divide the business and private benefit of such expenditure such that no apportionment is possible.

11.  The expense rules for self-employed actors and other entertainers are less restrictive, being governed by an entirely different piece of legislation. If the Appellant were self-employed she could claim the benefit of the business income test, but she is an employee of the BBC, and the narrower employment income test is therefore applicable.

12.  As regards s.36 CAA, ordinary clothing is not kept for "carrying on [the Appellant's] business" and is not dictated by the nature of the business, but is required to maintain decency before the cameras and performs no practical function beyond that and has no special feature to differentiate it from any other clothing one might see being worn in the street (referring to J Lyons & Co Ltd v. Attorney-General [1944] Ch 281, [1944] 1 All ER 447; Yarmouth v. France (1887) 19 QBD 647). The Appellant says that she cannot be seen wearing the same clothes day after day, and it would seem to follow from this that the "permanent employment" test is not met. The clothing does not have sufficient durability to qualify as "plant". If the clothing lasted more than two years there would not be a need for such high expenditure on clothing. The clothing would not, in any catalogue of a newsreader's assets, fall under the heading "machinery and plant". Furthermore, the clothing would be excluded by s.36(1)(b), in which "necessarily" and "in the performance of the duties" have the same meaning as in the employment expenses rule.

13.  On behalf of the Appellant, Mr Weissbraun submitted amongst other matters as follows.

14.  As regards s.336(1) ITEPA, not too much reliance should be placed on what was said in Hillyer v. Leeke as this was subsequently overturned by the House of Lords. If taken literally, it would mean that if an actor played the part of Winston Churchill and bought a suit for that purpose, this would not be an allowable deduction because the suit could also be worn for other purposes. The cases relied on by HMRC concerned the "wholly or exclusively" test, and did not address the test of "necessary". There is no relevant distinction between schedule D and schedule E in this respect.

15.  Although there may be no express term in the Appellant's contract of employment, it is an implied term that she must not wear the same clothes more than twice or three times a month. Unlike the taxpayers in the cases relied on by HMRC, it is part of the Appellant's job (like an actor) to "appear" and to be "seen" on screen. If the Appellant wore the same clothes frequently when appearing on television she would lose her job. The Appellant would be prepared to wear no clothing when performing her job but is required to do so by her employer. Others doing similar jobs spend more on clothing than was claimed by the Appellant in this case. If a person buys clothes and decides to wear them both when at work and outside of work, the clothing may have a dual purpose, but not if the clothing is worn solely for employment purposes. The fact that the Appellant could wear the clothing outside of work is irrelevant if she does not do so and if it is not the purpose of the clothing to be worn outside of work. There is therefore no duality of purpose. It is absurd to suggest that having hair done could not be for the purposes of work unless the taxpayer is performing his or her duties while sitting in the hairdressing salon. 

16.   The fact that the Appellant's work clothes are all different does not detract from their “special character” (comparing Hillyer v. Leeke in relation to uniforms).

17.  While the legislation applying to employed persons and self-employed persons is different, the similarities between the two are such that there is no reason why the expenditure on clothing in the Appellant’s circumstances should be treated differently to the case of a self-employed person.

18.  As to the issue of capital allowances, it is not necessary for an item to be used every day to be in "permanent employment". The HMRC position appears to be, incorrectly, that unless the clothing lasts for more than two years, it is not allowable as a capital allowance. Lyons concerned the question whether lights were "plant" or "part of the setting", and as there is no suggestion that the Appellant’s clothes are "part of the setting", this case is irrelevant.

19.  The Appellant believes that HMRC has information or evidence that it has not provided to the Appellant.  The Appellant has sought information from HMRC as to what extent other TV presenters have made and been allowed claims in respect of clothing. Although the onus of proof in this case is on the Appellant, it is unfair and contrary to the contrary to the Taxpayers Charter for HMRC to hold back information that it could easily provide.  Under the Taxpayers Charter, all taxpayers have a right to be treated equally, and if a number of taxpayers in the same situation have such claims allowed, it would be contrary to the Charter for such a claim to be denied in the Appellant's case. Although the present proceedings are not a Freedom of Information Act appeal, for which there are other appeal procedures, this is a matter to be taken into account by the Tribunal.

20.  In response, Mr Shea submitted as follows. HMRC’s freedom of information policy is published and the guidance manual is on the internet. All employed persons are treated by HMRC equally, and all self-employed persons are treated equally, under the respective legislation that applies to them. It is not possible to argue that employed and self-employed persons should be treated equally. There was no relevant distinction between the present case and the cases relied on by HMRC. The decision in Hillyer v. Leeke was not appealed to the House of Lords and is the leading case on this matter. The clothing of a newsreader is not like that of a uniform, and if the Appellant were seen in the street wearing her work clothes, she would not be identifiable as a newsreader. The jurisdiction of the Tribunal in the present case is limited to determining whether the expenses are allowable under the law, and the Tribunal's jurisdiction does not extend to matters such as whether different taxpayers are being treated equally or fairly in accordance with HMRC's own guidelines.

21.  In reply Mr Weissbraun said that it is insufficient for HMRC just to refer to its own guidance if it was not adhered to. He questioned how Mr Shea could know that all taxpayers were being treated equally in the absence of the information as to how other newsreaders had been treated. It cannot be held against the Appellant that she has not provided evidence as HMRC has withheld evidence that would be helpful to the Appellant's case.

The Tribunal’s views

Findings of fact

22.  The Appellant’s evidence is that the amounts referred to in paragraph 1 above for professional clothing and for laundering of professional clothing were incurred for clothes that were worn solely in the course of her employment with the BBC as a newsreader.  HMRC have not specifically sought to challenge this claim, and on the evidence as a whole the Tribunal finds that it has been established on a balance of probability that this is the case.

23.  In respect of the amount referred to in paragraph 1 claimed in respect of “professional hairdo and colouring”, the Tribunal finds that the evidence does not suggest that the Appellant had her hair done and coloured immediately before performing her duties as newsreader, and then changed it back again immediately after finishing reading the news.  The Tribunal proceeds on the basis that the Appellant had her hair done and coloured periodically, and that her hair remained in that state for a more extended period thereafter in which at times she was performing her duties and at other times was not.

Section 336 ITEPA

24.  In order for the expenditure referred to in paragraph 1 above to be allowed as a deduction from earnings under s.336 ITEPA, the “general rule” (and no relevant exception to the general rule has been advanced in these proceedings) is that the Appellant must have been “obliged to incur and pay it as holder of the employment”, and that the amount was incurred “wholly, exclusively and necessarily in the performance of the duties of the employment”.

25.  Hillyer v. Leeke (High Court, Chancery Division) concerned the application of a different provision in force at the relevant time (s.189(1) of the Income and Corporation Taxes Act 1970), which provided that:

If the holder of an office or employment is necessarily obliged to incur and defray out of the emoluments thereof 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 the same, or otherwise to expend money wholly, exclusively and necessarily in the performance of the said duties, there may be deducted from the emoluments to be assessed the expenses so necessarily incurred and defrayed.

The Tribunal finds that this provision contained a materially similar test of whether the taxpayer was “obliged to” expend the sum “wholly, exclusively and necessarily in the performance of the ... duties”. 

26.  In Hillyer v. Leeke, in applying s.189(1) of the 1970 Act, Goulding J said the following:

If a taxpayer works in an occupation where ordinary civilian clothing is worn of the sort that is also worn off-duty—take, for example, the case of almost all office workers—there can in my judgment be no apportionment of cost which would enable the taxpayer to deduct under s 189 some proportion of the cost of that ordinary clothing. The truth is that the employee has to wear something, and the nature of his job dictates what that something will be. It cannot be said that the expense of his clothing is wholly or exclusively incurred in the performance of the duties of the employment. The position is essentially different, I think, from that of a car, which is not being used for the taxpayer's private purposes when he is using it for his employer's purposes, and vice versa. There, some kind of time or mileage apportionment is not impossible. In the case of clothing, the individual is wearing clothing for his own purposes of cover and comfort concurrently with wearing it in order to have the appearance which the job requires. Accordingly, in that sort of case no apportionment is possible.

Does it make any difference if he chooses, as apparently the taxpayer did, to keep a suit or suits exclusively for wear when he is at work? Is it possible to say, as Templeman J said about protective clothing in Caillebotte (Inspector of Taxes) v Quinn, that the cost of the clothing is deductible because warmth and decency are merely incidental to what is necessary for the carrying on of the occupation? That, of course was a Sch D and not a Sch E case, but the problem arises in a similar way. The answer that the Crown makes is that where the clothing worn is not of a special character dictated by the occupation as a matter of physical necessity but is ordinary civilian clothing of a standard required for the occupation, you cannot say that the one purpose is merely incidental to the other. Reference is made to what Lord Greene MR said in Norman v Golder (Inspector of Taxes) [1945] 1 All ER 352 at 354, 26 Tax Cas 293 at 299. That was another case under Sch D, but again, in my judgment, applicable to Sch E cases, where Lord Greene MR said, referring to the food you eat and the clothes that you wear:

'But expenses of that kind are not wholly and exclusively laid out for the purposes of the trade, profession or vocation. They are laid out in part for the advantage and benefit of the taxpayer as a living human being.'

In my judgment, that argument is conclusive of the present case, and the expenditure in question, although on suits that were only worn while at work, had two purposes inextricably intermingled and not severable by any apportionment that the court could undertake.

There is another argument, not relied on by the Crown, which would, I think, be also decisive in a Sch E case such as this. Consider two persons doing the same work and also required to wear clothing of a certain standard. One of them wears his suits indiscriminately when on duty and when not on duty. They wear out quicker because of the stress imposed on them by his occupation, but he does not change the moment he comes off-duty; he just uses his suits, as many people do, to wear in the evenings and on Sundays as well as at work. The other person, like the taxpayer, keeps a suit or suits exclusively to wear at work and always changes. It would be strange if the tax situation of those individuals were different because of that difference in their private habits; but under Sch E I think it is clear that it would not be different. Apart from any other elements in the case, the first individual would come up against the words 'wholly' and 'exclusively', and the second individual would come up against the word 'necessarily', because there is no necessity that he should restrict any particular suit to working hours and, if he liked, he could do the same as his colleague in the first example.

That is an alternative ground on which this case could, in my view be decided, and I rely on both grounds.

27.  Mallalieu v. Drummond concerned the application of s.130 of the Income and Corporation Taxes Act 1970, which provided that:

Subject to the provisions of the Tax Acts, in computing the amount of the profits or gains 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, (b) any disbursements or expenses of maintenance of the parties, their families or establishments, or any sums expended for any other domestic or private purposes distinct from the purposes of the trade, profession or vocation …

28.  In Mallalieu, the appellant was a barrister.  The effect of the decision of the House of Lords in that case was that she was not allowed a deduction under this provision in respect of expenses incurred in the replacement and cleaning of items of clothing which she wore in court.  The clothing was in accordance with the notes for guidance on dress in court issued by the Bar Council with which she was required to comply, but they were ordinary articles of apparel which could be worn in everyday life.  Although the appellant in Mallalieu, unlike the appellant in Hillyer v. Leeke, was self-employed rather than employed, Lord Brightman (with whom Lord Diplock, Lord Keith of Kinkel and Lord Roskill agreed) said in Mallalieu that that case was “indistinguishable in principle from Hillyer v. Leeke” and said that he was “in complete agreement with Goulding J” ([1983] 2 A.C. 861 at 875-876).  The Tribunal cannot therefore accept the suggestion that the approach adopted in Mallalieu was materially different to that in Hillyer v. Leeke.  

29.  Lord Brightman said:

Of course Miss Mallalieu thought only of the requirements of her profession when she first bought (as a capital expense) her wardrobe of subdued clothing and, no doubt, as and when she replaced items or sent them to the launderers or the cleaners she would, if asked, have repeated that she was maintaining her wardrobe because of those requirements. It is the natural way that anyone incurring such expenditure would think and speak. But she needed clothes to travel to work and clothes to wear at work, and I think it is inescapable that one object, though not a conscious motive, was the provision of the clothing that she needed as a human being. I reject the notion that the object of a taxpayer is inevitably limited to the particular conscious motive in mind at the moment of expenditure. Of course the motive of which the taxpayer is conscious is of a vital significance, but it is not inevitably the only object which the commissioners are entitled to find to exist. In my opinion the commissioners were not only entitled to reach the conclusion that the taxpayer's object was both to serve the purposes of her profession and also to serve her personal purposes, but I myself would have found it impossible to reach any other conclusion.

It was inevitable in this sort of case that analogies would be canvassed; for example, the self-employed nurse who equips herself with what is conveniently called a nurse's uniform. Such cases are matters of fact and degree. In the case of the nurse, I am disposed to think, without inviting your Lordships to decide, that the material and design of the uniform may be dictated by the practical requirements of the art of nursing and the maintenance of hygiene. There may be other cases where it is essential that the self-employed person should provide himself with and maintain a particular design of clothing in order to obtain any engagements at all in the business that he conducts. An example is the self-employed waiter, mentioned by Kerr L.J., who needs to wear "tails." In his case the "tails" are an essential part of the equipment of his trade, and it clearly would be open to the commissioners to allow the expense of their upkeep on the basis that that money was spent exclusively to serve the purposes of the business. I do not think that the decision which I urge upon your Lordships should raise any problems in the "uniform" type of case that was so much discussed in argument.

30.  The Tribunal finds that the present case is not relevantly distinguishable from Hillyer v. Leeke, which was approved by the House of Lords in Mallalieu.  On the evidence, the clothing in respect of the claims were made is “not of a special character dictated by the occupation as a matter of physical necessity but is ordinary civilian clothing of a standard required for the occupation”.  As in the case of Hillyer v. Leeke, the Tribunal finds that it is irrelevant that the clothing was not worn when off-duty; it is sufficient that the clothing was of a type that could be worn when off-duty.  While it is claimed on behalf of the Appellant that she was required to wear clothes of a particular standard, that was also true also in Hillyer v. Leeke where Goulding J spoke of “clothing of a standard required for the occupation”. 

31.  It is claimed on behalf of the Appellant that she was required to vary the clothes that she wore when performing her duties and that she was not permitted to wear the same outfit more than two or three times a month.  It was however acknowledged by Mr Weissbraun that there was no express term in her contract to this effect, and it was said to be an implied term of her contract.  However, even if this were the case, the requirement of a varied wardrobe would in the Tribunal’s view be an aspect of the requirement that clothing be “of a standard required for the occupation”.  The Tribunal does not consider this argument to establish a material distinction between the present case and Hillyer v. Leeke.

32.  It is further argued on behalf of the Appellant that unlike the situation in Hillyer v. Leeke, it is part of the Appellant’s duties to “appear” and to “be seen”.  It is said that her duties are therefore analogous to those of an actor, unlike the appellants in Hillyer v. Leeke or Mallalieu, who could theoretically perform their duties behind a screen.  The Tribunal does not accept this argument.  The duties of the Appellant were to read the news on television.  In so doing, she would necessarily be seen by the public, and it was necessary that she was therefore appropriately attired.  The Tribunal finds that the situation is no different to that of a barrister who would be seen by the public when performing her duties of presenting cases before a court, or for instance a salesperson who would be seen by members of the public when performing his or her duties.  In each case, the fact that the person is seen by members of the public when performing his or her duties means that the person is required to wear clothing of a particular standard and/or variety.  The Tribunal also does not necessarily accept the premise that an actor would be able to claim a deduction for the cost of a costume worn on stage if, as in the case of Hillyer v. Leeke, the costume consists of “ordinary civilian clothing is worn of the sort that is also worn off-duty”.

33.  It is argued on behalf of the Appellant that she does not need the clothes for warmth as it is warm inside the studios, and that she would be prepared to read the news without clothes and only wears the clothes because her employer requires it.  The Tribunal does not consider this argument to establish a material distinction between the present case and Hillyer v. Leeke.  To adopt the words of Mallalieu, the Tribunal finds that as a matter of practical reality, the Appellant “needed clothes ... to wear at work”; the Tribunal does not accept as realistic that she could perform her duties without wearing any clothes at all if she were not required by her employer to do so.  As in the case of Mallalieu, it may be that when buying or cleaning clothes “she would, if asked, have repeated that she was maintaining her wardrobe because of [the] requirements [of her profession]”.  Nevertheless, as stated in Mallalieu, the object of a taxpayer is not inevitably limited to the particular conscious motive in mind at the moment of expenditure, and “it is inescapable that one object, though not a conscious motive, was the provision of the clothing that she needed as a human being”.

34.  It is argued on behalf of the Appellant that HMRC has refused to provide information on what claims for clothing have been made and allowed by HMRC in the case of other television presenters.  The Tribunal finds that it must determine this appeal in accordance with the law, and not in accordance with how HMRC have dealt with similar situations in the case of other taxpayers.  If the Appellant considers that she has been treated inconsistently with other taxpayers, it may be that there are other avenues open to the Appellant, as Mr Shea suggested.  The Tribunal therefore draws no adverse inference from any failure by HMRC in this case to provide information on how claims for deductions for professional clothing by other television presenters have been treated.

35.  The Tribunal finds that its reasons in respect of the Appellant’s claim for deductions in respect of the purchase and cleaning of professional clothing apply equally to the claim in respect of professional hairdos and colouring.  Even if the Appellant was required by her work to appear with her hair dressed to a certain standard, and even if she would, if asked, have stated that she was having her hair done because of those requirements of her profession, the hairdressing services were also something that she needed as a human being.

36.  The Tribunal therefore rejects the Appellant’s appeal under s.336 ITEPA.

Section 36(1) CAA

37.  There is no relevant statutory definition of “plant and equipment”, and the parties have not referred the Tribunal to any relevant authorities on the application of this provision to the circumstances of this case. 

38.  Lyons was not concerned with tax legislation.  In that case, Uthwatt J said:

I am content to accept the general description in Yarmouth v. France that "plant" includes whatever apparatus or instruments are used by a business man in carrying on his business. The term does not include stock-in-trade, nor does it include the place in which the business is carried on. Whether any particular article more properly falls within "plant" as thus understood or in some other category depends on all the circumstances of the case.

In the present case, the question at issue may, I think, be put thus: Are the lamps and fitments properly to be regarded as part of the setting in which the business is carried on or as part of the apparatus used for carrying on the business? The lamps and their fitments are owned by a caterer and used in premises exclusively devoted to catering purposes, but the presence of lamps in this building is not dictated by the nature of the particular trade there carried on or by the fact that it is for trade purposes that the building is use. Lamps are required to enable the building to be used where natural light is insufficient. The actual lamps themselves, so far as the evidence goes, present no special feature either in construction, purpose or position, and, being supplied with electricity from public suppliers, they form no part of an electric lighting plant in or on the hereditament. In my opinion, these lamps are not, in these circumstances, properly described as "plant," but are part of the general setting in which the business is carried on. They would not, I think, in any catalogue of this trader's assets, fall under the heading "machinery and plant," and I hold that the lamps and the fitments in question are not machinery or plant for the purposes of the War Damage Act, 1943. ([1944] Ch. 281 at 286-287.)

39.  The Tribunal finds that the clothing worn by the Appellant when reading the news “present no special feature either in construction, purpose or position” that is dictated by the nature of her duties or employment, beyond the fact that she is expected by her employer to wear clothing of a certain level of quality and with a certain level of variety.

40.  If the wording of s.36(1) CAA is given its plain meaning, the Tribunal considers that for reasons analogous to those given in Hillyer v. Leeke, “ordinary civilian clothing ... of the sort that is also worn off-duty” would not fall within the scope of the words “plant or machinery is necessarily provided for use in the performance of the duties of the employment or office”.  Again, for reasons analogous to those given in Hillyer v. Leeke, the Tribunal considers that it was not the intention of Parliament that they should.

41.  The Tribunal therefore rejects the Appellant’s appeal under s.36(1) CAA.

Conclusion

42.  For these reasons, the appeal must be dismissed.

The Appellant has a right to apply for permission to appeal against this decision pursuant to Rule 39 of the Rules.  The parties are referred to “Guidance to accompany a Decision from the First-tier Tribunal (Tax Chamber)” which accompanies and forms part of this decision notice.

Christopher Staker

TRIBUNAL JUDGE

RELEASE DATE:8 February 2010