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

View the previous news item for P11D Expenses

20 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 was considered in February by the Special Commissioner in the case Emms v Revenue & Customs. That decision was reviewed in our last newsletter. The same issues were explored in a new case, Perrin v Revenue & Customs, the decision on which was issued on 4 March 2008.

Mr. Perrin is a Chartered Certified Accountant. Before he qualified, while working for a firm of Chartered Accountants, he paid personally for the course fees and reference materials that enabled him to qualify. He claimed tax relief on those payments on his self-assessment returns for 2004/05 and 2005/06 but HMRC disallowed the claims on the basis that his expenditure was not incurred exclusively and necessarily in the performance of his employment duties.

The Commissioner upheld HMRC's decision, concentrating in particular on the requirement that, for a deduction to be permitted, the payments had to be have been incurred "in the performance of the duties". Mr. Perrin appeared to have a strong argument. The employer paid him while he was attending training courses (other than courses held at weekends) and viewed the training as part of the duties of the job. He could have been summarily dismissed for failing to attend a course for which he had been granted study leave.

The general principle is that expenditure incurred "in the performance of duties" is deductible, whereas expenditure that puts a taxpayer in a better position to perform the duties is not deductible. The Special Commissioner found that attendance at the training courses was not one of the duties of the employment as

• Mr. Perrin was not paid for training that occurred at weekends,
  
  
• he was paid for the work performed in the firm's business, not for attending the courses
  
  
• the training was described in the staff handbook as "study leave", i.e. time away from the duties of the employment, and
  
  
• study leave to qualify was granted at the discretion of the firm.

Even if the Special Commissioner had found that the expenditure had been incurred in the performance of this duties, he commented that he would have found it difficult to have concluded that it was "exclusively" so incurred. The expenditure must have been incurred in part in order to obtain his qualification and was not, therefore, exclusively incurred in performance of the duties.

...UK Payroll News - Latest

Sources:
Perrin v Revenue & Customs

The UK Payroll News is sponsored by HRD & Payroll Solutions

Discuss this news item in the PayPerShop Forum