© 2001. Dr John Booth is a Fellow of the Society of Advanced Legal Studies, a former inspector of taxes, lecturer and tax practitioner. This article is drawn from the thesis on The Inland Revenue and Non-statutory taxation, PhD. thesis, University of Southampton, (1998). Copyright has been approved for the use of material from the Public Record Office and is reproduced by permission of the Controller of Her Majesty’s Stationery Office.
Published in the December 2001 issue of Tax Adviser.
Deductible tax expenses in employment continue to have a colourful history. In recent tax cases up to Ansell v Brown  STC 1166, we are reminded that the rigour of requiring that the expenses of the duties of an office must be incurred wholly, exclusively and necessarily in the performance of those duties, has not diminished. Despite such a discouraging background, this article considers the possibility of expense claims by teachers relating to the costs of maintaining a room in which to perform their new duties, in view of the changed conditions of their employment in the Teachers` Pay and Conditions Act 1987. The claim is also compared to the statutory claims now made possible for university teachers.
The origins of expense claims in employment
There is nothing new about providing tax relief for expenses incurred in an employment. Section 51 of the Income Tax Act 1853 stated that:
‘In assessing the duty chargeable under Schedule (E) of this Act in respect of any public office or employment where the person exercising the same is necessarily obliged to incur and defray out of the salary, fees, or emoluments of such office or employment the expenses of travelling in the performance of the duties thereof, or of keeping and maintaining a horse to enable him to perform the same, or otherwise to lay out and expend money wholly, exclusively, and necessarily in the performance of the duties of his office or employment, it shall be lawful to deduct from the amount of the said salary, fees, and emoluments to be assessed under this Act the amount of all such expenses and disbursements necessarily incurred and defrayed in manner aforesaid.’
It is this section that has been passed down through the taxing acts and is now the ICTA 1988, s. 198 we all know, as amended by the Finance Act 1998 to take account of ‘qualifying travelling expenses’.
Ricketts v Colquhoun (HMIT) (HL) ( AC 1)
The rigours of the court rulings in regard to expense claims has been extensively quoted since the rigidity of the ruling in Ricketts v Colquhoun that has since been passed down as a precedent almost impossible to challenge. But in 1986 Roger Kerridge (British Tax Review 36) drew attention to some ambiguities, and quoted Vaisey, J., in Lomax v Newton (1953) (3 TC 558), regarding the adverbs ‘wholly and exclusively’ and noted Vaisey’s comment that:
…‘They are, to my mind, deceptive words in the sense that when examined they are found to come to nearly nothing at all’. As is the subjective adjective ‘necessary’.
There are also other weaknesses in the Revenue’s notoriously narrow interpretation of the Ricketts v Colquhoun ruling. In 1961 Donovan, L J, in the Court of Appeal, in Brown v Bullock (1961) (40 TC 1 at 10), whilst supporting the Revenue’s contention that if an employer prescribed a duty on an employee that it did not necessarily involve a relevant expense, ruled that:
‘The test is not whether the employer imposes the expense but whether the duties do, in the sense that, irrespective of what the employer may prescribe, the duties cannot be performed without incurring the particular outlay’.
This ruling, endorsed by Plowman, J, also in 1961, in McKie v Warner (1961) (40 TC 65 at 72), had an ineluctable logic in that if the holder of an office is required by the duties of that employment to incur an expense – that an employer does not impose, or makes no provision for – then those additional necessary expenses might also provide the basis for a claim for relief under ICTA 1988, s.198.
Teacher`s P.A.Y.E. expenses – a lottery?
The case for teachers to claim expenses under the ICTA 1988, s 198 rule, in the performance of their duties from 1987, is compelling. Despite this, there is no known appeal to the Commissioners, or case stated to the courts. Some reasons for this oversight need to be considered
A reason for teachers to make an expense claim now is because of the changes in their working conditions from 1987. Historically teachers were employed by local authorities in state schools by whom their conditions of employment were set, but everything was changed by the Teachers’ Pay and Conditions Act 1987, which repealed the previous remuneration and conditions of employment Act and provided the clue to future expense claims. In the Education (School teachers’ pay and conditions of employment) order SI 1987/650 which followed, in Sch. 1 para. 4 (3)(a) the requirement was to maintain ‘a reasonable balance for each teacher between work carried out in school and work carried out elsewhere’, implying that a teacher`’s work was not confined to school premises. Additionally in Sch. 3 in the section on professional duties, there are stated to be: ‘duties which a school teacher may be required to perform’. These include: ‘Planning and preparing courses and lessons`, which in turn include: ‘the setting and marking of work to be carried out by the pupil in school and elsewhere’, and‘Communicating and co-operating with persons or bodies outside the school’. In the teacher’s case the statutory requirements to perform duties beyond work within the school, and school hours, also implies the necessity for accommodation in order to perform those duties ‘necessarily required by the statute’. The cost of meeting the provision of such working space, as necessary to those duties, is implicit.
But in the conditions of ‘Working time’ (Sch. 3 s.4. (1)(f)), particular requirements on teachers are added:
‘A teacher shall … work such additional hours as may be needed to enable him to discharge effectively his professional duties, including, in particular the marking of pupils’ work, the writing of reports on pupils and the preparation of lessons, teaching material and teaching programmes. The amount of time required for this purpose beyond the 1265 hours referred to … shall not be defined by the employer but shall depend upon the work needed to discharge the teacher’s duties’.
These conditions were supplemented by the Department of Education and Science in the Pay and Conditions Document (1987), the ‘Government’s Proposals’, and by the advice by the National Association of Head Teachers in their ‘Guidance Documents’ in 1987. It is therefore these new imposed conditions of work, which make it necessary for duties to be performed after school hours, somewhere, that imply costs of accommodation that would have to be wholly, exclusively and necessarily incurred in the performance of those duties. Hence an ICTA 1988, s. 198 claim could be made.
There is a parallel for the teachers’ expense claim for the cost of providing work accommodation in the provision that was accepted for university teachers. This followed protracted negotiations from 1957 between the Association of University Teachers (AUT) and the Revenue, and followed the logic of the necessity for the provision of accommodation for research work, that is required to be performed as a condition of employment for university teachers.
The AUT and the Revenue`s views on expense claims
The Revenue summarised the recommendations made in the 1955 Royal Commission Report (Cmd. 9474) on the Sch. E Expenses Rule, (PRO IR 40/13372, 69365) and noted the administrative costs of implementing any changes without making any specific proposals. However the review did note the ‘fairly persistent criticisms of the rule’, from the 1920 Royal Commission and of the 1936 Codification Committee and noting the ‘extreme rigour of the Rule’, but the Revenue also noted their own memoranda to Chancellors ‘defending the present wording of the rule’, mainly on the administrative costs.
In 1957 the Revenue – under pressure from the Association of University Teachers, about expense claims – issued a note for the guidance of tax districts. An example is in the1962 advice by the Board to inspectors on university teachers’ deductions for expenses (Inland Revenue, C.I. (Schedule E) 50-8/62-C 323, para. 3.) in which advice on a study claim advised that ‘where it is necessary for a teacher to use a room at his residence in the performance of his (sic) duties, a deduction may be allowed’. Attention was also drawn to the existing Sch. E Instructions Manual (at E.5330), which included advice on research, the costs of books, and to the agreed apportioning of a residence that was confirmed as ‘dividing the number of main rooms (omitting bathrooms, lavatories and entrance hall)’, and that the inclusion of general rates was agreed. This meant that the costs of one room’s general rates, light and heat could be claimed, by apportionment. None of this information was made accessible to taxpayers or advisers.
The Revenue chose to keep this information `under wraps`. Deardon Farrow noted in 1984 (Inland Revenue Practices and Concessions, Oyez Longman Publishing Ltd., FRP 3/7), that Inland Revenue arrangements has existed from 1973, but that ‘Copies of those arrangements may (only) be inspected at the Inland Revenue Library at Somerset House but the arrangements are not otherwise generally available’. The ‘arrangement’ was only shown in 1973 (as a Practice and Concession Release 14), when it became clear that – by virtue of the research requirement in a university teacher’s conditions of employment –a claim under what is now ICTA 1988, s. 198 was justifiable. Despite the rigours of interpretation, it is now accepted as such by the Revenue.
No reference was made to any capital allowance claim, which – if a successful study claim was made under ICTA 1988, s 198 – would now attract capital allowances under the provisions of the Capital Allowances Act 1990, s. 27, (on the necessary furnishings such as a desk, table, chair, and, by a tax case, a table lamp, as well as technical aids for research and books). The claims for books was made possible from 1977 because in Munby v Furlong, (1977) 50 TC 419, Lord Denning ruled that the cost of books represented intellectual capital and would be an admissible capital allowance. Teachers are now finally well equipped by statute, to make the tax expense claims their work has long justified.
It should not be forgotten in making such an expense claim for the first time that Taxes Management Act 1970 (TMA 1970), s. 33 (error or mistake relief) opens up the previous six years.
It is suggested that the rigidity that is assumed to exist regarding ICTA 1988, s. 198 expense claims is not all that it seems to be. A lottery element in the handling of a claim by the Revenue and the non-statutory opposition to some claims should be resisted. It is suggested that a successful teachers’ expense claim should be made and could succeed, and that it is the duty of inspectors to inform taxpayers of allowances to which they are entitled.
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December 2001 by