First-tier Tribunal (Tax)

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Cite as: [2012] UKFTT 246 (TC)

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Tim Healy v Revenue & Customs [2012] UKFTT 246 (TC) (30 March 2012)
INCOME TAX/CORPORATION TAX
Assessment/self-assessment

[2012] UKFTT 246 (TC)

TC01940

Appeal number: TC/2010/8903

INCOME TAX –deductions for accommodation and travel and subsistence –were these wholly and exclusively incurred for the purposes of the profession of actor - was base of operation relevant – was expenditure on food incidental to accommodation in rented flat –taxis fares unsupported by evidence-appeal allowed in part

FIRST-TIER TRIBUNAL

TAX CHAMBER

	TIM HEALY	Appellant

	- and -

	THE COMMISSIONERS FOR HER MAJESTY’S	Respondents
	REVENUE & CUSTOMS

TRIBUNAL:	JUDGE BARBARA J KING

Sitting in public at North Shields on 15 March 2012

Nichola Ross Martin, of Francis Clark Tax consultancy for the Appellant

Ros Oliver, HMRC advocate, for the Respondents

DECISION

The Issue

1. This appeal relates to expenses claimed for accommodation at £32,503, subsistence at £4,094, and taxi fares at £4080, which the appellant included in his self assessment of tax for the year 2005-06.

2. HMRC opened an enquiry into that self assessment and on 27 October 2009 they issued a decision finding that these items were not deductible in accordance with s34(1)(a) Income Tax (Trading and Other Income) Act 2005 (“ITTOIA”).

3. The appellant argues that these expenses are deductible because he was “itinerant” throughout the year 2005-06 and the expenses are therefore incurred wholly and exclusively by the appellant for the purposes of his profession.

4. HMRC argue that the appellant cannot be classed as itinerant throughout the whole period from December 2004 to December 2005 because he had moved to London in that period.

The evidence

5. The appellant, Mr Healy, did not appear at the hearing but submitted a statement in evidence. His father in law John Vincent Welch, who maintains some books and records for the appellant and handles some aspects of the appellants’ diary, gave oral evidence.

6. Bundles of documents and authorities were produced by both parties.

7. Mr Healy is a professional actor. He is well known for parts which have involved the use of his ‘Geordie’ accent. He has appeared in long running television series.

8. He owns a property in Northumberland, in which he lived for some time, but which is now occupied by his sister-in-law. Mr Healy and his wife, Denise Welch, a fellow actor, have lived in a house in Cheshire since 2001. They moved there when she was appearing regularly in Coronation Street, which is filmed in Manchester.

9. On 9 December 2004 Mr Healy entered into a contract with Billy London Limited, in which he agreed to appear in ‘BILLY ELLIOT THE MUSICAL’ ( “Billy Elliot”). The initial period of engagement was for the period from 13 December 2004 until 17 September 2005 to include a rehearsal period which started on 13 December 2004 and live performances which were due to start on 24 March 2005 in the Victoria Palace Theatre in London. There was provision for the contract to be terminated on two weeks notice if the production did not continue until 17 September 2005. In the event, the production continued beyond September 2005 and Mr Healy extended his contract so that he continued in the production until 13 December 2005.

10. Rehearsals were in London and from 13 December 2004 to 24 March 2005 Mr Healy stayed ‘rent-free’ in a friend’s apartment in London.

11. On 15 April 2005 Mr Healy entered into a Tenancy Agreement to rent a flat at River Lodge, Grosvenor Road , London (“the flat”) which is just over one mile from the Victoria Palace Theatre. The Tenancy Agreement provided for a fixed term of 52 weeks from 15 April 2005 until 13 April 2006 at a rent of £875 per week.

12. A council tax demand in respect of the flat was produced. It was in Mr Healy’s name but addressed to him at his father in law’s address in County Durham.

13. The claim for accommodation expenses amounts to £32,503 and relates to payments made by Mr Healy for the flat over the period from April 2005 until December 2005 only.

14. Further amounts which have been disallowed are £4094 for subsistence which is said to come from eating out in restaurants in London and £4080 for taxi fares.

Arguments for the Appellant

15. Ms Ross Martin argues that Mr Healy was an itinerant worker throughout the whole period when he was in London in connection with the production of Billy Elliot. She produced analyses of income received by Mr Healy in the tax year 2005-06 and sought to show that this showed Mr Healy was working in a variety of venues throughout out the year even when Billy Elliot was on in London. Mr Welch in cross examination agreed that most of this income was earned either in the previous tax year before Mr Healy was involved in the Billy Elliot production or was ‘voice over’ work done in London whilst he was working on the Billy Elliot production.

16. Mr Healy’s wife and family remained in Cheshire throughout the time when Mr Healy was working on the Billy Elliot production. His address for correspondence and communication from his agents remained as the address in Cheshire. The address in Northumberland remained for correspondence from accountants, the bank, HMRC and any book-keeping matters, as this is how it had been done historically. The Northumberland address is closer to Mr Welch’s address and Mr Welch’s other daughter resides at the Northumberland address.

17. It was argued that Mr Healy could not have gone home to Cheshire every night after evening performances of Billy Elliot. He had the option of staying in a hotel but opted to rent a flat because it was cheaper and because there are less security issues than when staying in a hotel. It was argued that he did not move to London. His base remained in Cheshire.

18. It was further argued by Ms Ross Martin that it was usual practice, according to HMRC’s tax manuals, for HMRC to allow the reasonable travelling and subsistence expenses incidental to the accommodation costs in the case of itinerant workers. No tax manuals were produced.

19. It was agreed that there were no receipts for the taxi fares claimed. They were based on an estimate of 12 journeys per week, for 36 weeks, less 12 missed shows, from the flat to the Victoria Palace Theatre plus 30 visits to home in Cheshire and 16 visits to Manchester or London for ‘voice over’ work. It was argued that these were reasonable because they involved travelling in the West End of London at unsociable hours. As Mr Healy was not present it was not possible to obtain any further details from him on these taxi fares.

20. In respect of subsistence it was argued that these were incidental to the accommodation costs. Ms Ross Martin argued that the accommodation costs should be allowed because Mr Healy was an itinerant worker throughout and the subsistence costs should be allowed as incidental thereto.

Arguments for HMRC

21. Ms Oliver argued that HMRC do not accept that Mr Healy was an itinerant worker throughout the period of his involvement with the Billy Elliot production from December 2004 until December 2005. They argue that Mr Healy moved to London as his base in that period and that he has not shown that the expenditure on accommodation, taxis and subsistence was wholly and exclusively incurred for the purposes of his profession. The only reason that they have not disallowed his claim for accommodation, travelling and subsistence in the previous year 2004-05, in the period between 13 December 2004 and 5 April 2005, is that they have not at this time sought to make a discovery assessment for that year but it is still open to them to do so.

The law

22. The statutory provisions which govern whether a self employed person may deduct expenses from his profits are contained in s34 (1)(a) ITTOIA 2005.

Expenses not wholly and exclusively for trade and unconnected losses.

(1) In calculating the profits of a trade, no deduction is allowed for-

(a) expenses not incurred wholly and exclusively for the purposes of the trade, or

(b) losses not connected with or arising out of the trade.

(2) If an expense is incurred for more than one purpose, this section does not prohibit a deduction for any identifiable part or identifiable proportion of the expense which is incurred wholly and exclusively for the purposes of the trade.

23. This rule for expenditure which is deductible (allowable) when computing trading profits is not as restrictive as the “wholly, exclusively and necessarily” rule applied to the expenses of an employee but the expenses must be shown to be “wholly and exclusively for the purposes of the trade.” Expenditure which serves both a business purpose and a private purpose cannot be allowed in full because such expenditure has a dual purpose. If the expenditure can be apportioned reasonable accurately then the private element is disallowed.

24. There have been various cases which address the question of duality and address the question of the purpose of the expenditure.

25. HMRC referred to the case of Newsom v Robertson [1952] 33TC452 which involved a barrister carrying on his profession partly at home and partly at chambers. It was held that his motives for travelling between these two places were mixed and therefore failed the ‘wholly and exclusively’ test.

26. The word ‘itinerant’ does not appear in the statute. It was used by the High Court in the cases of Horton v Young and Weston v Young [1971] 47 TC 60 with the words

‘ .........his trade or profession is by its very nature itinerant.’

27. These cases went to the Court of Appeal where Stamp L J, went on to say

‘I find the greatest difficulty in drawing a line or indicating theoretical differences between expenses of travelling to and from home in cases such as those of itinerant bricklayers, of persons whose business involves travelling, on the one hand , and, on the other, persons such as Mr Newsom in Newsom’s case. The facts of such cases are infinitely variable and one must, in my judgment look at the facts of each case and decide whether the expenses are money wholly and exclusively laid out or expended for the purposes of the trade or the profession.’

28. In the same proceedings referred to above Denning L J suggested the test of determining a base of operations but this test has not been adopted in all cases heard since then.

29. There is no statutory test which says that a base of operations must be established before it can be ascertained whether a tax payer has incurred expenses wholly and exclusively for the purposes of the trade.

31. There is no absolute rule that food and drink can never be allowed. In Watkis v Ashford Sparkes and Harward [1985] 58 TC 468 food, drink and accommodation at an annual conference was allowed and any private benefit to the taxpayer, was held to be purely incidental.

32. The substance of this is that each case will turn on its own facts.