I have said many times in these pages that the rules for the deduction of expenses from employment income are so strict that it is virtually impossible to find any expenditure that is deductible. The test is set out in Section 336 ITEPA 2003. To qualify for relief, the employee must show that the expenditure is:
Incurred wholly exclusively and necessarily in the performance of the duties of the employment.
In August 2006 I made reference to the case of Consultant Physiatrist v HMRC SpC 557, in which the taxpayer incurred expenditure on professional training that was an essential part of her job. The Special Commissioner said that to the extent that she was required to satisfy the CPD requirement that any holder of the post would need to satisfy, the expenditure would necessarily be incurred by virtue of her employment. Unfortunately, however, that was not enough. The expenditure also needs to be incurred in the performance of the duties of the employment – and it was not. She was a consultant physiatrist, and the best that could be said about her training expenses is that they put her in a position to do her job better.
The reason I make reference to all this again is that there has been another case – HMRC v Banerjee  EWHC 62 – concerning a specialist registrar in dermatology in the NHS. She was required to attend courses and conferences prescribed by her supervisor; attendance was compulsory and a prerequisite of her maintaining her post and employment. She claimed a deduction in respect of expenditure incurred by her in attending the courses, and HMRC disallowed the expenditure. This all sounds very familiar. However, the High Court has decided that she was entitled to relief. They said that the deduction claimed by the taxpayer had to be related to an objective necessity imposed by the duties of the employment. Irrespective of what the employer might prescribe, the duties themselves involved the particular outlay.
The High Court also dealt with the requirement that the expenditure had to have been incurred in the actual performance of the duties of the employment and also to have been wholly and exclusively so incurred. They considered that this test was satisfied, too. This had not been a collateral contractual obligation undertaken by her at her employer’s request, nor had it been an extracurricular obligation that she had chosen to undertake in order to qualify herself to do her job or improve the prospects of her promotion. Otherwise, it would have been impossible for the test in Section 336 to be satisfied in any case in which the taxpayer was paid to undergo training.
Very interesting. In fact, very interesting indeed, because this is such an enormous departure from the traditional view of the rule relating to employee expenses that a whole vista of opportunity now opens up. Unfortunately, I do not think so. Although the High Court clearly trumps the Special Commissioners, there is ample House of Lords authority to the contrary, and I fear that (as always with this rule) taxpayers will have been encouraged to take their case to appeal, only to have their hopes dashed when the true meaning is revealed to them. I do hope that I am wrong. We shall see, because there is bound to be an appeal.
What is additionally interesting is that the facts of this case are almost exactly the same as an example in the Revenue Manuals – an example in which HMRC say that the expenditure is deductible. The example is in the Schedule E Manual at paragraph 32545, dealing with a scientist employed by a university:
She attends a presentation at a different university of the findings of a scientist working in the same field. She is required to attend such presentations as part of the program of research for which she is employed. The subject matter of the presentation directly influences the content and direction of her own research.
The duties of this employment include research. In this case attendance at the presentation is an integral part of the research process and so is one of the duties of the employment. The costs of travel to the presentation are deductible.
Whatever the technical position, you would have thought that if this is what they publish in their Manuals, HMRC would not argue the opposite when a real case turns up. No attempt seems to have been made to challenge HMRC on this ground – not very technical, but it would have been interesting to see how they tried to explain it away.