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.

From 2006/07 to 2008/09 the taxpayer claimed a number of expenses as wholly and exclusively for the purposes of trade as a self-employed radio presenter. The expenses claimed included part of her expenses incurred for things such as clothing, cosmetics, hairdressing along with a proportion of her home office expenses. She also claimed travel costs from her home to the radio station as well as food and drink.

When the taxpayer began self employment she had sought the help of two HMRC officers who had advised her on her expenses and what she could claim against her self employment income. In particular she was told that she could claim costs relating to public appearances and that the cost of a meal could be claimed if she was more than 5 miles from her place of office.

Once HMRC enquired into her returns they sought to disallow some of the expenses.  Following this, the taxpayer appealed to the first tier tribunal on the grounds that she had been given misleading information by the HMRC officials she had received help from in completing her tax return when she first became self employed.

The appeal was allowed in part for 2006/07 but not for the following years because HMRC’s  incorrect advice had been pointed out to her.

A recent First-tier Tribunal case was unusual in that HMRC were arguing for self-employment, whereas they would normally take cases to Tribunal arguing against self-employment, due to the extra National Insurance costs and less relief for expenses.

Yellow hard hat. Studio photography.
(Photo credit: Wikipedia)

Mr Coffey had been in partnership with his wife as a builder, but had retired through poor health. He claimed that he had been employed by Dr Selvarajan to supervise the refurbishment of the Doctor’s clinic.
Mr Coffey was paid a set weekly amount, regardless of hours worked. There was no written contract, no invoices were raised and there was no right of substitution.
The tribunal found that Mr Coffey had control over the building project. In the absence of a written contract, two documents were considered. The first was a document which Mr Coffey had signed which referred to him as, “principal contractor” and “planning supervisor”. The second was a note in his diary setting out the payments to contractors, which was held as evidence that Mr Coffey was in charge of these payments. Dr Selvarajan was still responsible for actually making these payments.
The tribunal also noted that there was a lack of financial risk, but that this was not “necessarily determinative”.
The Tribunal determined that Mr Coffey was self-employed, with one key indicator apparently being the fact that Mr Coffey had previously been a builder for a number of years and that he had not checked with his accountant how his new engagement would be taxable.
Whilst the outcome of this case, and the approach taken by HMRC, might be surprising, there may be some elements that could be used to build a case in favour of self-employment.