Tax Relief on Business Related Expenses - Whether incurred exclusively and necessarily in the performance of duties

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13 March 2008

Section 336 of the Income Tax (Earnings and Pensions) Act 2003 (formerly section 198 of the Income and Corporation Taxes Act 1988) allows employees to claim a "deduction from earnings" (i.e. claim tax relief) on expenses that they have incurred "wholly, exclusively and necessarily in the performance of the duties of the employment".

The use of this provision has been clarified in a decision by the Special Commissioner in the case Emms v Revenue & Customs, given on 14 February 2008. Mr. Emms claimed tax relief on his purchases of various foods, nutritional supplements and medicines that were required to maintain the level of physical fitness demanded for his employment as a professional rugby union prop forward. HMRC denied the tax relief on the basis that the expenditure did not qualify as a deduction from earnings because it was not incurred exclusively and necessarily in the performance of his employment duties.

The Commissioner agreed with HMRC's interpretation of the legislation, based on a number of well established precedents. Although Mr. Emms could not maintain his level of fitness without the foods and supplements that he had purchased, the expense was incurred to enable him to perform his duties, but not "in the performance of the duties". In addition he benefitted outside of his job from the good health that his diet provided.

The Commissioner conceded that this statutory provision is "notoriously rigid, narrow and to some extent unfair in its operations". It was necessary, however, to prevent employees from incurring expenses in their own time, entirely of their own choice, in order to improve their usefulness to their employer.

The Commissioner included in his decision an explanation of what is required to meet the four requirements of section 336.

1. "in the performance of the duties of his employment" - the duties themselves must require the employee to incur the expenditure and the act giving rise to the expenditure must be done in the actual performance of such duties.
   
   
2. "wholly incurred" - the expenditure must not serve a dual purpose, i.e. both a business purposes and a non-business purpose.
   
   
3. "necessarily incurred" - all holders of the particular employment must incur the expenses and it must not be possible to perform the duties of the employment without incurring the expense.
   
   
4. "exclusively incurred" - the expenditure must be solely attributable to the performance of the duties and any other purpose secured from the expenditure must be merely incidental.

...UK Payroll News - Latest

Sources:
Emms v Revenue & Customs
Employment Income Manual: Deductions from General Earnings

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