[2010] UKFTT 564 (TC)

TC00815

Appeal number: TC/2010/01074

Deductions from earnings from employment – whether employee obliged to incur expenditure as holder of the employment – whether the expenditure was incurred wholly, exclusively and necessarily in the performance of the duties of employment – appeal dismissed – section 336 ITEPA 2003

FIRST-TIER TRIBUNAL

TAX

                                               PETER GAMBLE                              Appellant

                                                                      - and -

                                 THE COMMISSIONERS FOR HER MAJESTY’S

                                                   REVENUE AND CUSTOMS               Respondents

                        TRIBUNAL: JOHN BROOKS (TRIBUNAL JUDGE)                                                                             PAUL ADAMS FCA (MEMBER)               

Sitting in public at Vintry House, Wine Street, Bristol on 26 October 2010

The Appellant in person

Colin Brown of HM Revenue and Customs, for the Respondents

© CROWN COPYRIGHT 2010

DECISION

1.       Mr Peter Gamble appeals against an amendment to his 2005-06 self-assessment tax return made by HM Revenue and Customs (“HMRC”) which disallowed£14,238 of a deduction of £17,271 claimed by Mr Gamble from his earnings from employment as “allowable expenses”.

Facts

2.       Although there was not a ‘Statement of Agreed Facts’ the underlying facts, derived from the documentary evidence provided to us (which included correspondence between the parties and copies of Mr Gamble’s contracts of employment) were not disputed.

3.       Mr Gamble was employed as a Sales Executive by Horsebridge Network Systems Limited (“Horsebridge”) between 12 June 2005 and 30 November 2005. Under his “Terms and Conditions of Employment” with Horsebridge Mr Gamble’s place of work was his home address in Wiltshire. In addition he was required to attend the Company’s Office in Cheltenham “at least one day per week” as well as “to work at various premises belonging to the Company’s customers, and to travel both within the UK and abroad.” An internet connection was necessary for him to be able to carry out the duties of his employment.

4.       Whilst with Horsebridge Mr Gamble was responsible for managing its London based customers which he did from a property in London in which he had a 40% interest. He was provided with a laptop but used his own mobile phone and home office facilities including a PC, fax and printer.

5.       From 30 January 2006 until at least the end of the tax year, 5 April 2006, Mr Gamble was employed by Nortel Networks (UK) Limited (“Nortel”) as an Account Director. The terms and conditions of his employment are contained in a letter to him from Nortel, dated 23 January 2006. The letter states that his normal place of work will be in Maidenhead but that he may be required to travel on “company business anywhere in the UK or overseas.”

6.       Mr Gamble’s role with Nortel was similar to that with Horsebridge although with Nortel he was responsible for only one multi-national company which operated in 16 countries worldwide. Again, as with Horsebridge an internet connection was necessary for Mr Gamble to perform the duties of his employment.

7.       Although Nortel did have a London office Mr Gamble explained that as it did not have space for him he continued to use the London property for his work with the company. 

8.       Mr Gamble was also an investor in West Country Leisure Limited. He became a director of the company but could not recall the date on which this occurred. However, he did not receive any earnings from West Country Leisure during 2005-06.

9.       During 2005-06 Mr Gamble incurred the following expenditure which he sought to deduct from his earnings from employment:

                                                £

London Room Rent                   7,848.00                                  

London Phone Rent                      131.88

London Internet                            395.88

London Congestion Charge            210.60

London Parking                              95.00

Wiltshire Phone                            204.00                      

Wiltshire Internet                          263.88

Mobile Phone                               559.84

Wiltshire Office Costs                   720.00

Mileage Costs                            4,992.00

Netgear Router                               70.88

Belkin Router                                 81.73

Printer Cartridges                            93.59

Printer Cartridges                            42.98

Ebuyer Computer Equipment         131.00

Ebuyer Monitor                            290.65

Magazine Subscription                  119.00

Ebuyer Digital Camera                  297.55

London Fixed Phone                       73.98

Dell Laptop                                  410.08

HX4700 Palm Computer               239.00

                        ________

Total Deductions claimed       £17,271.37                                   

Law

10.    The general rule is that a deduction from earnings is allowed for an amount if the employee “is obliged to incur and pay it as a holder of the employment” and the amount is incurred “wholly, exclusively and necessarily in the performance of the duties of the employment” (s 336(1) Income Tax (Earnings and Pensions) Act 2003 (“ITEPA”)). However, deductions are only allowed “from any earnings of the employment in question” and “not from earnings from any other employment” (s 328(1) ITEPA).

11.    It is clear from the authorities (eg Humbles v Brooks (1962) 40 TC 500; Ansell v Brown (2001) 73 TC 338; Fitzpatrick and others v Inland Revenue Commissioners [1994] STC 237) that it is necessary to distinguish between expenditure incurred in the performance of duties (which is deductible) from expenditure incurred to put the taxpayer in a position to perform the duties (which is not).

12.    Under s 50 Taxes Management Act 1970 (“TMA”) if, on appeal the Tribunal decides that the appellant has been overcharged by an assessment it shall be reduced but if the appellant has been undercharged the assessment shall be increased accordingly.

Discussion and Conclusions

13.    During the course of proceedings Mr Brown explained that although HMRC had, when amending Mr Gamble’s self-assessment, treated all of the 6,450 miles travelled during the year as business mileage this was not in fact the case as mileage in periods when he was not employed by either Horsebridge or Nortel had been included. When this was taken into account the distance travelled by Mr Gamble on business was reduced to 2,220 miles. Mr Gamble accepted that this was the case and that, applying the statutory mileage allowance of 40p a mile for the first 10,000 miles (s 230 ITEPA), the amount of relief to which he was entitled was £888.00.

14.    In addition Mr Gamble accepted that he was not entitled to a deduction in respect of the mobile phone, Ebuyer Digital Camera or Dell Laptop as this expenditure was incurred in respect of West Country Leisure from which he received no earnings during 2005-06 (s 328 ITEPA).

15.    It had previously been accepted by HMRC that Mr Gamble was entitled to deduct the expenditure incurred in respect of the London Congestion Charge and London Parking as well the cost of business calls and business use of the internet which were estimated at £208.Therefore, the issue for us to determine is whether Mr Gamble is entitled to any additional deductions in respect of other items of expenditure.

London Room Rent

16.    Mr Gamble told us that, as he managed its London based customers, Horsebridge required him to have a presence in London and that he had obtained this employment because he had a property available for his use there. He explained that the “rent” for the property (in which he had a 40% interest) was determined as a proportion of the mortgage interest payments, council tax and utility bills and although it could have been rented to a third party, when compared to a hotel, it was more cost effective for him to use the property when in London. He said that he continued to use the property when employed by Nortel as there was no room for him at their London office and emphasised that he used the property for business purposes only.

17.    Mr Brown’s primary contention was that as Mr Gamble had an interest in the property no expense had been incurred. Alternatively he argued first, that the expense was not one which Mr Gamble was obliged or necessarily required to incur; secondly, that the deduction had been claimed for periods when Mr Gamble was working for neither Horsebridge or Nortel; and thirdly that the cost of the London property was not incurred wholly, exclusively and necessarily in the performance of the duties of his employment.

18.    We accept that when he was employed by Horsebridge Mr Gamble was required to spend time in London and that during he used the property solely for business purposes. We also accept that the property was used solely for business purposes when he was employed by Nortel. However, as he had an interest in the property Mr Gamble was effectively paying the “rent” to himself. We therefore agree with Mr Brown’s contention that no expense had been incurred and as such no entitlement to a deduction arises.

19.    Even if this were not the case and we were to assume that Mr Gamble was obliged to incur and pay the “rent” as a holder of the employment with Horsebridge, between June and November 2005, we would have difficulty in finding that this expense was incurred “in the performance of his duties of his employment” as is required by s 336 ITEPA to enable it to be deducted from the earnings of his employment. This is because he incurred the expense so as to be in a position to perform his duties of managing Horsebridge’s London customers and not in the performance of those duties.

London Phone & Internet

20.    It was accepted by Mr Brown that this item of expenditure had been incurred by Mr Gamble solely for business purposes. However, he contended that the expense was not one which Mr Gamble was obliged or necessarily required to incur. We reject that argument but accept the alternative proposition advanced by Mr Brown that while the expense placed Mr Gamble in a position to perform the duties of employment it was not incurred in the performance of the duties of employment.

21.    Therefore Mr Gamble is not entitled to deduct this item of expenditure from his earnings.

Wiltshire Phone & Internet

22.    Although, as with the London phone and internet, we find that Mr Gamble was obliged to incur this expenditure during the periods of his employment we do not consider that it was incurred in the performance of the duties of his employment but to put him in a position to perform those duties. As such we are bound to apply the decision of the House of Lords in Fitzpatrick and find that there is no entitlement to deduct.  

Wiltshire Office Costs

23.    The claim for a deduction by Mr Gamble relates to his use of a room in his Wiltshire home, which has eight rooms, and was calculated as a proportion of heating, light, water and other home office based services. Mr Brown contends that the expense is not one that Mr Gamble was obliged to incur as a holder of the employment and that even if it were it was not incurred wholly and exclusively and necessarily in the performance of his duties.

24.    We accept what Mr Brown says insofar as Nortel and West Country Leisure Limited are concerned but as Mr Gamble’s Wiltshire home was his place of work when employed by Horsebridge we find that he was obliged to incur this item of expenditure during the period of that employment. However, we find that the effect of this expenditure was to put Mr Gamble in a position to perform the duties of his employment and as it was not incurred “in the performance” of those duties he is not entitled to deduct it from the earnings of that employment.

Routers, Printer Cartridges, Ebuyer Computer Equipment & Ebuyer Monitor

25.    We find that as these were purchased by Mr Gamble to put him in in better position to perform the duties of his employment and not in the performance of those duties he is not entitled to a deduction.

Magazine Subscription

26.    Mr Gamble explained that the subscription was for the Investors Chronicle which, in addition to the magazine, gave him access to online tools which he could use to analyse companies to identify potential customers for his employer’s customers.

27.    Mr Brown referred us to the House of Lords decision in Fitzpatrick which concerned an unsuccessful claim by journalists to deduct to the costs of newspapers from their earnings. In that case Lord Templeman had said (at 243) that “it seems to me that a journalist does not purchase and read newspapers in the performance of his duties but for the purpose of ensuring that he will carry out his duties efficiently”. We accept Mr Brown’s contention that the magazine subscription similarly enabled Mr Gamble to perform his duties more effectively but that as he did not purchase and read the Investors Chronicle in the performance of those duties he should not be entitled to deduct the expense of the subscription.

London Fixed Phone

28.    Although it was accepted by Mr Brown that this was entirely business expenditure we find that as the expense of the London phone was incurred to put Mr Gamble in a position to perform the duties of his employment and not in the performance of those duties he is not entitled to a deduction.

HX4700 Palm Computer

29.    This was purchased by Mr Gamble in June 2005, when he was employed by Horsebridge, to enable him to be in constant email contact with his employer which he explained was a fundamental requirement of his employment. We accept that this was the case and that having the Palm Computer enabled Mr Gamble to carry out the duties of his employment. However, as the cost of acquiring the Palm Computer was not incurred by Mr Gamble “in the performance” of those duties we find that he is not entitled to a deduction of this expense.

Decision

30.    As we have found that Mr Gamble is not entitled to the any of the deductions claimed in his 2005-06 return other than those previously accepted by HMRC the appeal is dismissed.

31.    The effect of this decision, after taking account of the deductions previously accepted by HMRC together with his acceptance of the revised mileage allowance, is that Mr Gamble is entitled to deduct £1,401 from his earnings.

32.    As HMRC applied the wrong mileage allowance when making the amendment to his 2005-06 tax return, Mr Gamble has been undercharged by the amended self-assessment by £359.04 (ie £1,632 at 22%). We therefore increase the assessment by this amount in accordance with s 50(7) TMA with the result that that Mr Gamble is entitled to a repayment of £3,446.78.

33.    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.

JOHN BROOKS

TRIBUNAL JUDGE

RELEASE DATE: 11 November 2010