The rules on whether expenditure may be allowed as a deduction under the ‘wholly and exclusively’ principles can often be contentious.  This is demonstrated by the number of cases taken to the courts to determine such disagreements.
The recent Upper Tier Tribunal case of Healy v CRC has added further material to the case law on the subject, and due to the outcome promises more to come as it has been referred back to the First Tier Tribunal.
The case concerned professional actor, Tim Healy, and whether or not the cost of his accommodation in London was an allowable expense.  The First-tier Tribunal had allowed his original appeal on the basis that he had not been looking for a permanent home in London.
HMRC appealed, arguing that the tribunal had erred in law by ignoring whether or not Mr Healy had a duality of purpose when incurring the costs as it met the need for warmth and shelter than he ordinarily had.
The Upper Tier Tribunal agreed that by failing to address this point the Tribunal had erred in law.  Based on the facts available to them, they did not have the necessary detail to determine the case.  It was therefore remitted to the First-tier Tribunal for a new hearing.
The outcome of the re-heard case could have wider implications for the self-employed and so it will be interesting to see how the case develops.  In the meantime, it is important to take care in this area and take each case on its own merits.

Contracts
Contracts (Photo credit: NoMouse)

A recent Employment Appeal Tribunal case was of interest for tax purposes as it considered whether an individual was employed or self-employed in fairly unusual circumstances, as well as a related legal point on whether illegality in reporting the income from the engagement could prevent a claim being made in relation to the contract.

 The case concerned Ms Quashie, who had worked as a dancer at Stringfellows from June 2007.  An interesting element of the case concerns the fact that the dancers were not paid by the the club, but actually paid the club to be able to work there.

 The tribunal considered whether the elements of control and mutual obligation still created an overarching “umbrella” contract of employment despite this.

 The key factors appeared to be the requirement for dancers to turn up if they were rostered to appear, and a requirement to attend team meetings every Thursday morning.  Fines were levied for failures to attend in these circumstances.

 Based on these factors, the tribunal found that there was an employment contract which covered the full period of her engagement.

 A further interesting aspect of the case related to illegality.  Ms Quashie had completed tax returns on the basis that she was self-employed and had claimed a number of expenses which the tribunal believed had been misrepresented.  These included £20 per week for the use of her home, motor expenses and “depreciation and loss of profit”.

 The judge pointed out that false returns to HMRC can make the performance of a contract illegal and therefore prevent a claim being made by the taxpayer for a breach of the contract.

 The case was referred to a full employment tribunal to consider Ms Quashie’s claim for breach of contract on the basis that she was employed but direction was given for the tribunal to consider the illegal performance aspect further.

 When deciding on whether an individual is employed or self-employed the Courts look at several ’employment indicators’.

These are used to gain an indication of an individual’s employment status.  They include the right to substitution, level of control, use of own equipment and several more.  

In a recent tribunal case it was contested as to whether a Doctor was self-employed or employed when undertaking practice work.  The tribunal found that applying these indicators proved to be inconclusive.

Both parties involved believed that the arrangement was one of self-employment and a contract was drawn up as such. The tribunal stated as the case was ‘borderline’ this should be taken into account. The taxpayers appeal was upheld and he was deemed to be self-employed.  

An individuals employment status is a complex area. If you would like advice with regard to your employment status  why not get in touch.