Article by Dr John Booth, Fellow of the Society of Advanced Legal Studies, published in the May 2002 issue of Tax Adviser.
A debt is owed by all with an interest in the problems associated with Sch. E expense claims to the Chartered Institute of Taxation (CIOT) and its commissioning editors.
Their challenging journals have introduced views on controversial tax subjects differing sharply from the established Inland Revenue interpretations– of which teachers’ expenses is one.
In particular Andrew Flint, in the March issue of Tax Adviser, noted the interest shown in my article Teachers’ tax expense claims, December 2001, p. 28. But this was not the first article. In Schedule E expenses – a lottery? Taxation Practitioner, June 1999, p. 14 I posed the problem of all Sch. E expense claims being a lottery, and introduced the possibility of teachers’ expense claims being made under the statutory provision of the Income and Corporation Taxes Act 1988 (ICTA 1988), s. 198. The suggestion was not taken up at the time, and was ignored by the Revenue, who have now responded with vigorous opposition to the numerous claims being submitted. This writer re-affirms the basis outlined for a teacher’s expense claim, so is the Revenue’s reasoning misplaced?
Is the Revenue’s position sustainable?
A typical reply by the Revenue to a claimant, making a ICTA 1988, s. 198 claim, is that:
‘Your claim for the cost of a room ¼ cannot be accepted. It is not a contractual duty of a teacher that a room be set aside to provide facilities at home to carry out those duties. I enclose copies of the relevant instructions for your information’.
The established principle in law is that he (sic) who asserts should prove, and the Revenue assertions do not provide that proof. Further, the statutory duties are stated to be ‘marking of pupils’ work, writing reports on pupils, the preparation of lessons, teaching material and teaching programmes ... in a year of 12 months from 1st August’, added to which the Government’s Proposals, being the Parliamentary interpretation for which Pepper v Hart  BTC 591 provided and which was confirmed in Erskine May (22nd ed, 1997, pp 91-2, state that ‘teachers will decide when and where to undertake such work’ (emphasis added). The authorised choice is clear and the Revenue’s assertion is incorrect. Such are the problems of disinformation that teachers encounter.
The full list of references from 1987 is comprehensive and includes: School Teachers’ Pay and Conditions of Employment, the Government’s Proposals, March 1987; Teachers’ Pay and Conditions Act 1987; Statutory Instrument 1987 No. 650, The Education (School Teachers’ Pay and Conditions Employment) Order 1987; Department of Education & Science School Teachers’ Pay and Conditions Document 1987; National Association of Head Teachers Guidance Documents No. 1, April 1987 and No. 2, May 1987. These documents contain some 70 paragraphs and sub-paragraph sources of authority and direction for the additional duties of a teacher, beyond the 1265 hours designated by the head teacher. These instructions have two consequences:
(1) a failure on the part of a teacher to perform such additional duties would bring disciplinary action; and
(2) the teacher will decide when and where to perform those duties.
This implies that a decision by a teacher to perform such additional work at a place of residence would attract a claim for the (necessary) cost of the upkeep of that place of work in the performance of those duties and that it is no business of the Revenue to challenge such a decision. A limit to Revenue interference in a taxpayer’s decision-taking is not unusual. In 1952 Lord Romer discussed ‘necessity’ in Bentleys, Stokes & Lowless v Beeson (HMIT) (1952) 33 TC 491 and concluded that: ‘It is not for the Commissioners to prescribe what expenditure is or is not necessary for the conduct of a business’, and, by implication, the Revenue as well.
Andrew Flint also discussed a sample of those assertive rejoinders by the Revenue in the March issue of Tax Adviser, with which the writer agrees, and it is clear that there is no consistency of argument between any of these assertions. There is also another problem for the Revenue in that the samples referred to of insurance agents, midwives and councillors who receive ‘room allowance’ and teachers, who have been denied it, now have to consider the question of discrimination between employments in the European Courts of Justice and Human Rights. The related claims by university teachers, although advanced in a Revenue assertion (Inland Revenue Schedule E manual, para. SE70713*) have in fact been admitted as ICTA 1988, s. 198 claims and shown to be so in the Parliamentary Commissioner Case No. C389/90, as agreed by the then Chairman of the Board, and discussed by the writer in The Inland Revenue – Saint or Sinner?** The Revenue have a lot of catching up to do.
The Revenue and the courts
The illogical inconsistencies from the courts in regard to s. 51 of the 1853 Tax Act now of ICTA 1988, s. 198 , is also more fully discussed in my book. However Andrew Flint, again in the March issue of Tax Adviser, showed that the Revenue arbitrarily chose two tax cases (Taylor v Provan and Pook v Owen), out of context, regarding travel expenses, to support their case against the necessity of a teacher to provide secure accommodation for a statutory requirement to perform some duties out of school hours.
By coincidence the illogical and inconsistent rulings regarding expense claims were most fully explored by Roger Kerridge in the British Tax Review, 1986. Kerridge showed that in 1953 Vaisey J, in Lomax v Newton (1953) 3 TC 558 regarded the adverbs ‘wholly and exclusively’ as ‘deceptive words in the sense that when examined they are found to come to nearly nothing at all’. Similarly I discussed this in my 1999 Taxation Practitioner article. Also over the noun ‘necessity’, it is shown above that in 1952 Lord Romer said that ‘it is not for the Commissioners to prescribe what expenditure is or is not necessary for the conduct of a business’, which the writer regards as by implication the Revenue with an application to the ICTA 1988, s. 198 ‘necessarily in the performance of those duties’.
But the problems for the Revenue do not end there because the writer has shown that in 1961 Donovan LJ, in Brown v Bullock (1961) 40 TC 1 made clear 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’.
In regard to a teacher’s duty to write reports and prepare lessons, with access to research material and school attendance records with security provisions, there is no other accommodation that could possibly be used in any of the 365 days in a year than in a room of a residence.
There is also the problem of the flawed precedents referred to in Ricketts v Colquhoun (1925) 10 TC 131, on which the Revenue have persistently relied. But the origins of those expense claims were shown by the writer in the June 1999 issue of Taxation Practitioner, to have stemmed from the 1803 and 1853 taxing acts, when the courts ignored a claim under the enabling clause in s. 51 of the 1853 Act, for which Parliament had legislated, and found under s. 52 of the 1854 Act, meaning that the original s. 51 has never been addressed. It is from these rulings that the illogical, inconsistent and unsafe precedents in Cook v Knott (1887) 2 TC 246, Lothian v Macrae (1884) 2 TC 65 and Revell v Elsworthy Bros (1890) 3 TC 12 emerged, to be the precedents in Ricketts v Colquhoun. There is also the reminder by Andrew Flint of the recent cases of Kirkwood v Evans, and Ansell v Brown of judges apologising about the state of the law and feeling obliged to follow (unsafe) precedents, but why should they not? The common law is about such corrections. Further as discussed in the Taxation Practitioner in November 1999 where, in the case of Pawlowski (HM Collector of Taxes) v Dunnington (1999) BTC 175, the court criticised the Revenue for not having an appeals procedure for secondary legislation and refusing the Revenue a right of appeal. So is there another explanation for the Revenue’s apparent illogical and inconsistent treatment of ICTA 1988, s. 198 claims? The answer might be in the related problems of secondary legislation and arrangements as follows.
The Revenue and ‘flood gates’
One problem is that when taxing legislation provides difficulties for the Revenue over collection, as the Financial Times claimed in 1986, that ICTA 1988, s. 198 had been legislated for administrative convenience, and the question of tax law does not arise. But the knub of the paradox was identified in 1984 by Sir John Donaldson, then Master of the Rolls, in R v HM Treasury ex parte Smedley, when he made clear that:
‘Legislation by Order in Council, Statutory Instrument or other subordinate means … not being Parliamentary legislation ... is subject to some degree of judicial control … (and) within the province and authority of the courts to hold that particular examples are not authorised by statute, or ... by common law, and so are without legal force or effect.’
These ‘other subordinate means’ include all of the more than 1,100 Revenue Statutory Instruments, concessions, practices, arrangements, decisions, interpretations and Press Releases listed in the CCH Red Book Vol. 1B and the Tolley Yellow Tax Handbook Part II, and because the only form of appeal is through a Judicial Review, beyond the financial resources of all but the most wealthy, they are in effect beyond any appeal procedure, as was noted above in Pawlowski v Dunnington. A consequence is, in regard to teachers’ expenses, that the Revenue asserts views that can only be challenged through the General Commissioners as a statutory appeal under the s. 198, but still with the possibility of bearing the costs in the event of failure in the courts, and noting that the Revenue assertions are ‘without legal force or effect’.
But there is another view of administrative convenience by the Revenue around which the secondary legislation is woven. The writer has discussed the historic origins of this problem in The Inland Revenue – Saint or Sinner?, concluding that the practice is widespread and applies to legislation that the Revenue, for convenience, does not implement. A particular example was discovered where, in the case of a university teacher, a district sought to oppose a s. 198 and back year expense claim on the grounds that it would ‘open a flood gate’ of other claims (Parliamentary Commissioner Case No C389/90). Apart from the statutory requirement on the Revenue to collect taxes as legislated, the decision to oppose a claim on such grounds was an act of political discrimination that fortunately the Chairman of the Board rejected, with personal apologies to the appellant and the payment of compensation. But the avenue exists within the Revenue and is suggested to be a factor in the present dilemma over teachers’ expenses.
It is clear that, for the Revenue, there are some 500,000 teachers to whom this expense claim is presently denied, but the concern is that the Revenue is again making a political decision of rejection not within their power. It is that decision which is the province of a Chancellor and Parliament and which this writer considers to be the issue.
Appeals procedures do exist beyond the exhaustive process of the General Commissioners. The Parliamentary Commissioner accepts appeals through an MP, on the grounds of injustice through maladministration, and ‘ arbitrariness’ is one such definition. The Revenue Adjudicator also accepts complaints on the grounds of ‘dissatisfaction’ with the treatment of a case by the Revenue. I conclude that the 19th Century s. 51 now s. 198 has been distorted by illogical and inconsistent court rulings and Revenue interpretations and should be repealed. An alternative statute should then be enacted to provide for expense claims in a more mobile working society with greater needs for travel allowances to meet occupational locations and the rising demands for work to be done at a home base. A travel and room allowance for the performance of such duties should be an automatic concomitant of such legislation in the national social and economic interest. The present failure by the Revenue to meet these national needs, through the common law, now has no place in the 21st Century.
**The Inland Revenue – Saint or Sinner? By to be published by Coracle Publishing, ISBN 0-9542398-0-6.
*This paragraph can be accessed on the Internet address: Note 1
020 7235 9381
May 2002 by