Travelling Expenses For The Self-Employed: Recent Cases

There are many hoary old chestnuts in the world of taxation, one of which is the deductibility (or not) of travelling expenses incurred by the self-employed.

For an expense to be deductible in computing a self-employed individual’s taxable profits the expense must have been ‘wholly and exclusively’ incurred for business purposes; must not constitute a ‘capital’ expense; and must not be ‘specifically prohibited’ as a deduction by statute. Whilst these principles are prima facie clear, their application is perhaps less so.

Although, strictly, an expense needs to be wholly and exclusively incurred for business purposes, in practice it is often feasible to dissect a particular expense into a private and a business element, enabling the latter to rank as tax deductible (but not the former). Invariably, HMRC will seek to challenge the taxpayer’s split. 

In the recent case of Dr AS Jolaoso (Jolaoso v R & CC [2011] UKFTT 44 TC), a gynaecologist, the travelling expenses in point were motoring costs, and whilst Dr Jolaoso sought to claim 50% of these costs as incurred for business purposes, HMRC allowed only 10%.

The courts (when interpreting the relevant legislation) have decided that travelling expenses incurred in the course of the business are deductible whereas such expenses incurred in travelling to the place of business are not. This principle was decided as far back as 1971 (Horton v Young [1971] 3 ALL ER 412) and the case was a victory for the taxpayer, a Mr Horton. 

In that case, Mr Horton, a sub-contractor, argued that his home was his business base, and thus when he travelled around picking up his bricklayers to then take them to building sites such expenses were tax deductible, i.e. the expenses were incurred in the course of carrying on his business. The court agreed. A similar favourable result also arose for the taxpayers in two cases in 2011 (Reed v R & CC [2011] UKFTT 92 TC; Kenyon v R & CC [2011] UKFTT 91 TC), concerning a scaffolder and a pipe fitter respectively.

On the other hand, some seven years earlier in 2004 (Powell v Jackman [2004] EWHC 550 (Ch)) Mr Powell, a milkman, was denied a deduction with reference to his travel expenses incurred in travelling from his home to the milk dairy to pick up his milk for delivery to customers. And, six years later in 2010 (Manders v R& CC [2010] UKFTT 313 TC; see below), a similar result arose where a market trader was denied a deduction for expenses incurred in travelling from his home to the location of his market stall. And as recently as 2014 (White v R&CC [2014] UKFTT 214 TC see below) yet another taxpayer, this time a flying instructor, was denied a deduction for his travel expenses incurred in travelling from his home to airports where he provided flying lessons. 

Two recent taxpayer failures and very similar cases occurred in 2014 (Dr S Samadian v R & CC [2013] UKFTT 115 TC) and 2015 (Dr Sharat Jain v R & CC [2015] UKFTT 670 TC). Both cases involved hospital consultants and the expenses related to travel between home and a number of private hospitals, and between the private hospitals and various NHS hospitals.

What becomes very clear when looking at these cases (and there are many more) is that they are each very heavily fact dependent.

The cases illustrate that the major problem area is where the taxpayer seeks to deduct travel expenses incurred in travelling from (and to) his/her home where an alleged office subsists. The office must be of some substance; just a desk and filing cabinet, and making the odd business call, will not suffice. In addition, HMRC must not be able to argue that in fact the ‘real’ office is located elsewhere and it is from that office that the real the business is conducted. 

Thus, for example, in Manders v R & CC (referred to above) the court took the view that it was his market stall that was Mr Manders’ main place of business and so travel costs from home to the stall were disallowed. Similarly, in White v R & CC (referred to above), the court held that despite having an office at his home, the flying instructor conducted his business at the airports on a regular and predictable basis, and hence travel costs to and from were disallowed. 

To enhance success, try and identify a decided case (or cases) where another taxpayer succeeded in the courts and where the facts are very similar to your own circumstances; and don’t be greedy if a split between private and business is necessary.