In what could become a landmark decision in the interpretation of ‘wholly and exclusively’ allowable expenditure, Dr Samadian has lost his protracted battle with HM Revenue & Customs (HMRC) over his business mileage claims.
After enduring an enquiry lasting over 7 years and 3 Tribunal Hearings, the Tribunal panel led by Judge Kevin Poole, acknowledged Dr Samadian had a dedicated office in his home which was necessary for his professional activity. However, the panel did not accept the office could be treated as the starting point for calculating private practice business mileage involving habitual journeys.
Potentially the decision has a wide interpretation across all professional self-employed activity, where the business owner undertakes substantive work at home, but who also has another business base at which they deliver their expertise on a regular basis.
An architect may draw initial building sketches in a home office, but finalise the design in a studio at head office premises. An accountant may regularly work at home on a particular morning during the week, but then travel into the main office to conduct a meeting in the afternoon. If business mileage is claimed for the outward or return journey, HMRC could now argue that mileage is disallowable.
Before explaining the decision in greater detail, it is important to understand more of the background to the case and the arguments put before the Tribunal for consideration by Joseph Howard, Counsel for Dr Samadian and Kim Sukul, representing HMRC.
Dr Samadian’s professional activities
As a geriatrician, Dr Samadian specialises in the health care of elderly people.
He works full time for the Epsom and St Helier NHS Trust, in a PAYE capacity, at two hospitals in south London: the St Helier and the Nelson. He has a permanent NHS office with full administrative support, including a secretary.
In addition, Dr Samadian holds weekly out-patient sessions at two private hospitals: St Anthony’s in Cheam and Parkside in Wimbledon. His NHS secretary acts as his secretary for him in his private practice in her spare time.
His private patients are generally wealthy and insured, over 75 years of age, with multiple medical problems. They are referred to him by General Practitioners (GP) or other medical colleagues by a combination of letter, telephone or e mail.
In his submission to the Tribunal, Dr Samadian explained that letters are typically sent to his dedicated office at his home in Sutton, either direct or via his NHS office. He submitted evidence in the form of headed paper showing his home address as the correspondence address, as well as paperwork sent to him at home by health insurance companies.
Telephone calls are made to his home office, his mobile, his private secretary or his NHS office, whilst e mails are usually sent to his professional e mail address which he accesses at home.
After receiving a referral, Dr Samadian will embark upon a ‘fact finding’ consultation at one of his scheduled sessions at St Anthony’s or Parkside, at the patient’s own home or an alternative care location.
Out-patient consulting rooms are hired for a three hour duration for the scheduled sessions, with other doctors using the rooms on a similar restricted basis for the rest of the time. At the end of each session, the temporary doctor’s name plate is changed on the door and replaced by the next occupant’s name.
More often than not, the rooms contain:
- A desk
- A chair
- A couch
- A screen
- A blood pressure monitor
- A hospital computer (which Dr Samadian does not have access to)
If he receives any test results or other correspondence at either of the private hospitals, it is placed in a shared pigeon hole for all other doctors with surnames starting with ‘S’.
Having usually conducted the initial 45-60 minute consultation without any administrative support at the two private hospitals, Dr Samadian then prepares a treatment plan in his home office and continues to monitor and care for the patient, liaising with the patient’s GP and family as necessary.
If patients are admitted to hospital, those patients remain under the care of Dr Samadian and he reviews their condition during his ward rounds, six evenings a week at St Anthony’s.
The home office
The treatment plan is researched and designed in Dr Samadian’s home office, where he builds a ‘collateral history’ from the patient’s carer, relatives, GP and social services, whilst also considering the results of any tests or other medical checks performed on the patient.
His home office contains:
- A desk
- A chair
- A medical library
- Computer facilities
- A filing cabinet
- Prescription pads
- Basic medical equipment including a stethoscope, an ophthalmoscope, an auroscope and patella hammer within a doctors bag for patient examinations
- Patient clinical records
- His business records
Dr Samadian does not examine patients in his home office, although all business correspondence with his patients and GPs, does show his home address.
The mileage claim
In the absence of a mileage log, Dr Samadian was asked to supply a schedule of his typical weekly journeys, to support the 65% business mileage motoring and capital allowance expenses on his Tax Returns.
The schedule was duly submitted, but two regular journeys which had been claimed for became the source of disagreement and the subject of the Tribunal hearing:
- The mileage between the NHS hospitals and the private hospitals.
- The mileage from home to the private hospitals.
HMRC disputed the validity of both journeys and the Inspector proposed an alternative total business percentage of 6%.
Agreement could not be reached, so amendments were issued by HMRC, which were subsequently appealed against. The outstanding amendments refer to 2003/04, 2004/05, 2005/06 and 2006/07.
Interestingly, at the third hearing, the Tribunal panel asked what was being asked of them; determination of the appeals, or a general ruling on the principle and allowability of travel between various places of work. Both Sukul and Howard agreed a ruling on the principle was required, for both sides to then agree on the outcome of the open appeals.
The tax legislation
Both parties also agreed that the pertinent tax legislation to be applied was Section 74 Income and Corporation Taxes Act 1988 up to 2004/05 and Section 34 Income Tax (Trading and Other Income) Act 2005 for 2005/06 onwards.
In other words, the legislation which sets out that expenditure must be incurred wholly and exclusively for the purposes of the trade to be allowable.
The Tribunal panel concurred.
The tax cases
During the course of the Tribunal proceedings, in submissions and in oral debate, six cases were referred to:
- Newsom v Robertson 33 TC 452
- Horton v Young 47 TC 60
- Sargent v Barnes (1978) STC 322
- Powell v Jackman (2004) STC 645
- Manders v HMRC (2010) UKFTT 313(TC)
- Mellor v HMRC (2011) UKFTT 29 (TC)
However, in an unexpected twist, the Tribunal looked towards a further case for guidance, which was not specifically referred to by Howard or Sukul.
Traditionally associated with clothing claims, Mallalieu v Drummond (1983) STC 665 was prominent in the decision making process of the Tribunal because of comments made by Lord Brightman relating to the wholly and exclusively legislation.
The case for Dr Samadian
In his trial submissions and presentations before the Tribunal, Howard on behalf of Dr Samadian, argued extensively on the meaning and interpretation of the term ‘business base’.
In a nutshell, he commented that the business base should be regarded as the place from which a business is run and not, as put forward by HMRC, as the place where the professional services, or part of them, are carried out.
He expanded on this further by saying each case should be judged on its own facts and there was no general principle that meant any travel to or from a taxpayer’s home must always be disallowable as having an element of non-business duality.
In further commentary, he talked about the need to establish the purpose of each journey and submitted that on the facts of the case, Dr Samadian’s home was clearly the business base as there was no non-business purpose in the travel between the home and the private hospitals.
Drawing parallels to the Horton v Young case, he highlighted the transient nature and limited facilities available to his client at the two private hospitals, comparing it favourably to Horton, who entered into contracts at his home, kept his tools there and carried out his office work there. It was the place where ‘he was found’.
The case against Dr Samadian
Sukul expressed HMRC’s more simplified view that the cost of travelling to and from home and a place of work is generally not allowable, as the journeys cannot be regarded as wholly and exclusively for business.
She argued that the motive, object and purpose of Dr Samadian’s journeys between his home and the private hospitals were to take him from his home where he lives and to then undo the journey. Therefore, the travel could never be wholly and exclusively for the purposes of his profession.
A clear distinction was also attempted comparing Horton, the labour only subcontractor working at various temporary sites, to Dr Samadian, the medic delivering his professional expertise at fixed sites, in an habitual fashion.
Whereas Howard had argued the travel between the NHS hospitals and the private hospitals was allowable because there was no non-business element to the journeys, Sukul disagreed and said the purpose of the journey was to undo the non-business journey home, undertaken by Dr Samadian when leaving the private hospital to return home.
The Tribunal Decision
The Tribunal panel have referred to the relevance of Newsom v Robertson, Horton v Young, Sargent v Barnes and Jackman v Powell in their decision, but have placed an emphasis on the comments made by Lord Brightman in Mallalieu v Drummond, when he sought to explain the statutory words ‘expended for the purposes of the trade…’
Mallalieu was centred around a claim for professional clothing for wearing in court as a barrister. The claim failed, the Tribunal notes, ‘because although she (Mallalieu) had no conscious motive for incurring the expenditure which was not a business motive, the facts were such that there must necessarily have been a non-business motive in her mind as well.’
The panel further explain that they found the ruling ’ important and helpful in clarifying the distinction between ‘object’ or ‘motive’ on the one hand and ‘effect’ on the other, and in making clear that a court may look behind the conscious motive of a taxpayer where the facts are such that an unconscious object should also be inferred.’
Whilst accepting that Dr Samadian does have a place of business at home, the panel comment that there must have been a ‘mixed object’ in the travelling between home and the private hospitals because part of the object of the journeys must ‘inescapably’ be to maintain a home in a separate location to St Anthony’s and Parkside.
The journeys between the NHS hospitals and the private hospitals are also regarded as non-deductible by the panel on the grounds that ‘the object of the travel is to put the Appellant into a position where he can carry on his business away from his place of employment; the travel is not an integral part of the business itself’.
A full copy of the ruling is available to view online here
What next ?
The decision was released on 28 January 2013 and Dr Samadian appealed. His case is now expected to be heard by the Upper Tribunal towards the end of this year.
Each case should always be judged on its own facts.
However, HMRC will generally accept the following journeys as allowable:
- Journeys between private hospitals or other private practice destinations e.g. from a private hospital to a clinic or from a private hospital to see a private patient in their own home or care home.
- Emergency call outs starting at the home, but going towards a non-habitual destination, such as a patient in their own home or care home. (Emergency call outs to private hospitals or other venues attended in an habitual fashion are not allowable)
- Travel to attend training courses, where there is no duality of purpose.
- Trips to visit private secretaries, accountants, solicitors, insurers and other professional advisors.
- Travel associated with the collection of evidence or information required for the writing of medico-legal reports or appearance in court as an Expert Witness.
There can be no doubt that the Tribunal panel have carefully considered their decision, evidenced by the 22 page ruling. However, where doubt does remain is HMRC’s attitude and approach to similar cases.
The Newsom v Robertson case was heard in 1952. The Horton v Young case was heard in 1970. The Mallalieu v Drummond case was heard in 1981. All of these cases delivered a different insight and interpretation into the substance of what constitutes the business base for the self-employed.
If HMRC was so convinced by the precedent set by Newsom, why has it not enforced the principle over the last 60 years ? In that time, HMRC has conducted many hundreds, if not thousands, of investigations into medical professionals like Dr Samadian and been aware of the prevailing practice to claim business mileage, for private practice work, on the basis that the home office is the business base. Could it not be argued that, following the enquires which have taken place over the years, enough information had been made available to HMRC for the department to realise what was happening ?
On that basis, how can HMRC now turn to hospital consultants and other professionals caught by this issue and say, you’ve made a mistake, we’ve made a discovery and we’re going to scale backwards and forwards into other years because of your behaviour ?
In reality, this issue has only really come to the fore and received any sort of prominence since HMRC started a project into medical professionals some 6 years ago. As the project team based in Scotland worked more cases, the mileage and capital allowances claims came under scrutiny and HMRC sought to enforce the ruling made in Newsom.
( A version of this article was published in Taxation magazine.)
Author: Guy Smith, Senior Tax Consultant on the ReSource Tax and VAT Consultancy Team