HMRC appear to continue to be on the attack as far as travel and subsistence costs of the self-employed are concerned. This is evidenced by some recent tax cases.
One of the most significant is that of a medical consultant, whom we have reported on previously, so this is a brief reminder. The consultant holds weekly out-patient sessions at two private hospitals, St Anthony’s in Cheam and Parkside in Wimbledon. Although the Tribunal accepted that the consultant did do some work from home, it decided that:
• the taxpayer had places of business at Parkside, St Anthony’s and his home
• as the taxpayer had other places of business apart from his home, his travel between home and those other places of business was not allowable
• although the taxpayer’s travel between his home and Parkside/St Anthony’s was between places of business, on general principles no deduction could be allowed in relation to that travel
• the taxpayer’s travel between his places of employment with the NHS and Parkside/St Anthony’s was undertaken to get him to and from his place of business and not in the course of carrying on his business.
Up, up and away
A more recent case involved a self-employed flying instructor and examiner who gave lessons and conducted examinations at two airports. The taxpayer claimed the cost of travel by car between his home and the airports in his return for 2006/07. HMRC decided that the taxpayer was not entitled to deduct his travel expenses as they were not wholly and exclusively incurred for the purposes of his business.
The taxpayer keeps his business records, as well as equipment such as charts and navigation equipment, at his home but does not have an office in his home. He uses a laptop for business purposes and might use it in any one of a number of rooms in his house.
The taxpayer’s home address is that at which he is registered with the Civil Aviation Authority (CAA), which contacts him at that address. The taxpayer reads any new CAA materials in order to stay up to date as an examiner at home. His home telephone number is on the CAA website and people can contact him as a result of that but most of his work comes from recommendations by word of mouth.
The Tribunal found, once again, that although the instructor might have worked from home, he had places of business at the two airports where he met his students, taught them to fly and sometimes examined them as well as testing qualified pilots. The travel expenses claimed in respect of the journeys between his home and the airports were not incurred wholly and exclusively for the purposes of his profession as a flying instructor and examiner. These were also incurred as a result of his decision to live away from the airports at Bournemouth and Shoreham where he carried on his business.
So where does this leave the self-employed?
A number of points are clear from these cases:
• HMRC are actively targeting this matter. This is not just an issue for medical consultants and pilots but any self-employed person who ‘works from home’.
• The historic cases set a high bar that some clients will not pass.
• The ‘pain’ of HMRC’s adjustments may spiral backwards over several years due to the changes in case law on discovery.
So the moral appears to be to have a close look at travel and subsistence claims in the light of these recent cases and, perhaps, moderate claims going forward.