First-tier Tribunal (Tax)

[2010] UKFTT 313 (TC)

TC00600

Appeal number: TC/2009/14882

Appeal against disallowance of motor expenses – what constitutes base of operations or actual place of business

FIRST-TIER TRIBUNAL

TAX

                                              MR. M. MANDERS                             Appellant

                                                                      - and -

                                 THE COMMISSIONERS FOR HER MAJESTY’S

                                                   REVENUE AND CUSTOMS               Respondents

                        TRIBUNAL: MISS BLEWITT (TRIBUNAL JUDGE)                                                                             MR JOLLY (MEMBER)                 

Sitting in public in Manchester on 8^th June 2010

Mr O’Grady, instructed by the General Counsel and Solicitor to HM Revenue and Customs, for the Respondents

© CROWN COPYRIGHT 2010

DECISION

1.       This is an appeal against a decision by HMRC in their Completion Notice issued on 26 February 2009, to disallow motor expenses in the sum of £3,532 following an enquiry into the Appellant’s Tax Return for the year ended 5 April 2007. A Discovery Assessment was also issued for the period 2005-2006 which disallowed motor expenses in the sum of £4,404.

2.       The Appellant appealed against the Completion Notice on 16 March 2009 and the 2005-2006 Discovery Assessment on 4 August 2009. No issue was taken by HMRC as to the late appeal in respect of the Discovery Assessment, and subsequently a Reviewing Officer decided that the criteria for making such an assessment had not been satisfied and should be vacated. HMRC did not contest that appeal and therefore the only matter before the Tribunal is the 2006-2007 matter.

3.       Mr Manders and his representative, McElhinney Jones, did not attend the hearing. The Tribunal had been informed by letter dated 25 May 2010 that the Appellant was undergoing major surgery and as a result would not attend the hearing. No request for a postponement was made; the Appellant’s representatives indicating that all submissions would be made in writing. In those circumstances the Tribunal proceeded to hear the oral submissions of Mr O’Grady for HMRC and his witness Mr Bartram and took into account all written submissions made on behalf of the Appellant.

4.       In brief the facts are that the Appellant is a sole trader who lives in the Whitefield area of Manchester. He trades in a partnership with a permanent pitch at Accrington Stanley Football Club, where he attends all home matches. Once a week the Appellant trades fast food from Chelford Market. The Appellant has a trailer from which he operates which he transports to the market. During the relevant period, namely 1 April 2006 to 31 March 2007, the Appellant also traded at two shows at Kendal and one at Blackpool.

5.       The enquiry by HMRC, and therefore the issue before this Tribunal, only relates to the sole trading activities and motor expenses claimed in respect thereof. In summary, the Appellant stores his trailer, stock and items used for his work at a unit called the “Showman’s Yard” which is four miles from the Appellant’s home. There is also a workshop at the premises. Four days a week the Appellant attends the Showman’s Yard in order to clean and carry out repairs of his equipment. He also travels between his home and cash and carries in order to purchase stock. On the day of Chelford Market, the Appellant goes to the Showman’s Yard to collect the trailer whereupon he transports it to the Market, trades and returns it to the premises before going home.  The same exercise was performed by the Appellant in respect of the Kendal and Blackpool Markets also.

6.       It is accepted by HMRC that the expenditure for travel between the Appellant’s home and the Showman’s Yard on the four non-trading days of the week should be allowed but had not been included in the Review Decision.

7.       The issue before the Tribunal is where the Appellant’s place of business or base of operations is located. HMRC disallowed the motor expenses claimed by the Appellant on the basis that his place of business is the market place, principally at Chelford but on exceptional occasions Blackpool and Kendal. HMRC took the view that the only allowable mileage was between the Appellant’s home and the cash and carries in order to purchase stock and the mileage between the Appellant’s home and the Showman’s Yard on the four non-trading days. HMRC contend that the mileage between the Appellant’s home and market does not constitute business mileage as it is travel from his home to his place of business and vice versa and thereby has a dual purpose.

8.       The Appellant contends that the mileage between his home and the Showman’s Yard is the mileage which should be disallowed, but that his onward journey from Showman’s Yard to the market should be allowed. In a letter to the Tribunal dated 18 March 2010, the Appellant’s representative sets out clearly and concisely the submissions made on behalf of the Appellant. A further letter dated 25^th May 2010 also to the Tribunal, puts forward a response to HMRC’s arguments. The Tribunal considered the content of both letters very carefully. In essence, the Appellant contends that his catering unit is his base of operations and therefore any expenditure incurred in the transportation of the unit from the yard to the market is incurred wholly and exclusively for the purpose of trade. It is submitted that the Appellant’s case is distinguishable from case law upon which HMRC seek to rely and we are told that the Appellant has no lease for Chelford Market, but simply a verbal agreement with the market operators. The Tribunal noted the Appellant’s submission that he could, if permission was granted and potential customers existed, trade from the yard. It is further noted by the Appellant’s representative that without the catering unit the Appellant could not trade and that if the Appellant paid a third party to transport the trailer, then this could be a deductible expense.

9.       In reaching its decision, the Tribunal considered the applicable legislation. No issue was taken by the Appellant as to the enquiry being opened under section 9A Taxes Management Act (“TMA”) 1970. HMRC accepted that the Appellant is entitled to refer his appeal for consideration by the Tribunal following a review by HMRC by virtue of section 49G TMA 1970 and that the onus of proof thereafter lies with the Appellant to show that the assessment against which he appeals is excessive (section 50(6) TMA 1970).

10.    The question for the Tribunal is whether the motor expenses claimed by the Appellant fall within section 34(1) Income Tax (Trading and Other Income) Act 2005; whether they were “wholly and exclusively” incurred for the purposes of the trade.

11.    The Tribunal was referred to a number of helpful cases; Sargent v Barnes 52TC335, Horton v Young (1971) 2 All ER 351 and (1971) 3 All ER 412 (CA), Newsom v Robertson 33TC 452 and Jackman v Powell 2004 STC 645.

12.    The Tribunal considered the judgment in Newsom v Robertson, in particular the reasoning of Lord Denning who stated that “In order to decide into which category to put the cost of travelling, you must look to see what is the base from which the trade, profession or occupation is carried on.” The Tribunal therefore went on to consider the nature of the work undertaken by the Appellant and found as a fact that his base of operations was the market place; that being the place from which his trade is carried out. The Tribunal therefore found that Chelford Market, and on rare occasions Blackpool and Kendal Markets were the Appellants base of trading. The Tribunal considered the submissions put forward on behalf of the Appellant, namely that he could have traded from anywhere he put his trailer, however the Tribunal took the view that the issue in this case is what the Appellant did, not what he could have done, and whilst it was noted that the Appellant stored his business equipment at the premises, the Tribunal found as a fact that the Appellant did not trade from the premises. On this basis the cost incurred for travel between the Appellant’s home and Chelford Market, or indeed Kendal and Blackpool Markets, was not exclusively for the purpose of trade because of the duality of purpose by allowing the Appellant to live away from his place of work.

13.    The Tribunal then had to go on to consider the Appellant’s submission that the Showman’s Yard is his base of operations and therefore the costs incurred in travelling from there to a market place are allowable. The Tribunal found the facts and issue in the case of Sargent and Barnes to be similar to those in the present case. The facts of that case are well known and will not be rehearsed here; suffice it to say that it was found that the dentist was not carrying on his practice at a laboratory where the making of dentures/repairs took place. The Court held that the taxpayer was simply availing himself of the facility and utilising the journey between his residence and his base of operations (his practice) by calling at the laboratory on his way to and from work.

14.    The Tribunal drew a parallel between the facts in Sargent and Barnes and those in the present case and took the view that the Showman’s Yard was a facility where the Appellant called to pick up and store his trailer and stock on his way to and from the market, where his trade was carried on.

15.    Having found as a fact that the Appellant’s base of operations was the market place, the Tribunal considered the case of Jackman v Powell, which involved the issue as to whether a milkman’s round could constitute a base of operations. Whilst different on the facts, the Tribunal took the view that there is no reason why the Appellant’s place of trading in this case could not amount to a base of operations. The Tribunal took the view that the fact that the Appellant traded on a weekly basis at Chelford and only exceptionally at Kendal and Blackpool sufficiently showed Chelford as his principal place of trading.

16.    The Tribunal also considered the case of Horton v Young, but distinguished it on the facts on the basis that the taxpayer in the case of Horton continually moved from one place to another to carry on the trade; each time being on a temporary basis and dictated by the contract undertaken.

17.    For those reasons the Tribunal varies the original decision to allow additional motoring expenses of £615 in respect of the mileage between the Appellant’s home and the Showman’s Yard on non-trading days and confirms the total allowable motoring expenses for the period 2006-2007 as £1,015.00 with £2,917.00 disallowed and additional tax and Class 4 National Insurance Contributions due from the Appellant in the sum of £875.10.

18.    This document contains full findings of fact and reasons for the decision. Any party dissatisfied with this decision has a right to apply for permission to appeal against it pursuant to Rule 39 of the Tribunal Procedure (First-tier Tribunal) (Tax Chamber) Rules 2009.   The application must be received by this Tribunal not later than 56 days after this decision is sent to that party.  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.

TRIBUNAL JUDGE

RELEASE DATE: 2 July 2010