COMPLIANCE
‘Kunjuring’ up the right result?
Justine Riccomini FFTAAIPA Chartered MCIPD ChFCIPP, head of taxation at the Institute of Chartered Accountants of Scotland (ICAS) provides detail of how a mature student claimed a deduction on living accommodation expenses which ostensibly failed the ‘wholly, exclusively and necessarily’ test
Overview An interesting case came out of the Tax Chamber last October, which concerns itself with the nature of expenses claims incurred while in employment, and whether they’re ultimately tax-deductible or not. The decision, issued from the first tier tribunal (FTT) in October 2021, reminds us that the qualifying criteria for employment- related expenses are that the expense must be ‘wholly, exclusively and necessarily’ incurred in the proper performance of the employee’s duties. This is in accordance with Section 336 of the Income Tax (Earnings and Pensions) Act (ITEPA) 2003. In this case, the employee managed to obtain tax relief for part of the accommodation costs he incurred in south London, which was an extremely unusual outcome, and was based on a specific fact pattern.
incur and pay them), the FTT concluded Mr Kunjur was on call during his training contract. Therefore, he was required to live at or near the hospital. The strict term ‘wholly, exclusively and necessarily’ was discussed years ago, in Lomax (HMIT) v Newton (1953), when Vaisey J commented: “An expenditure may be ‘necessary’ for the holder of an office without being necessary to him in the performance of the duties of that office; it may be necessary in the performance of those duties without being exclusively referable to those duties; it may perhaps be both necessarily and exclusively, but still not wholly so referable. The words are indeed stringent and exacting; compliance with each and every one of them is obligatory if the benefit of the rule is to be claimed successfully.” The decisions made by the FTT are unusual in the context of the ‘wholly, exclusively and necessarily’ requirements. The wholly and exclusively tests would appear not to have been met by virtue of Mr Kunjur deciding independently of the hospital that he would rent an apartment in Collier’s Wood. This wasn’t an objective requirement of his work, but a personal choice which put him in a position to carry out his duties. There was a requirement by his employer to be on call and to be within 30 minutes of the hospital during those times, but Mr Kunjur had initially tried to carry out the role by remaining in his home in Southampton. Renting that particular flat in that particular location wasn’t the thing which enabled him to actually carry out those duties day to day. The FTT nevertheless considered that, although Mr Kunjur’s use of the flat had some mixed-use purpose to it (which fails the wholly and exclusively tests), the primary purpose was work and study related. Together, they were deemed to
Even though the possibility of employer- funded hospital accommodation and self-funded ad-hoc hotel accommodation might have been options, Mr Kunjur decided the best option for him, as a mature student, was to take a modestly priced apartment nearby. He could leave his belongings and study materials there and be alone to study in peace from Monday to Friday. He returned home at weekends. Mr Kunjur made a claim for a deduction on his tax return relating to the living accommodation expenses (note: his travelling expenses wouldn’t have qualified due to the permanent workplace rules). This was denied by Her Majesty’s Revenue and Customs (HMRC), who also imposed a penalty for the negligent completion of a tax return. The qualifying criteria for employment-related expenses are that the expense must be ‘wholly, exclusively and necessarily’
Background To fulfil his ambition of becoming a
maxillofacial surgeon, Mr Kunjur needed to undertake a four-year full-time training contract. Having located a suitable contract in south London, Mr Kunjur, who was a dental surgeon residing in Southampton with his family, accepted the post, which was the only one available at that time. The contract also required Mr Kunjur to carry out occasional duties at another nearby south London hospital, as well as regular night duties, and to be within 30 minutes of the hospital if on call. Mr Kunjur was faced with a daily commute to south London from Southampton. It soon became obvious the travelling time became too much when added to the pressure of the work, training and the night duty element of the role. Mr Kunjur was concerned he might not be able to discharge his duties properly, which could lead to undesirable outcomes, such as a negligence claim from a patient.
incurred in the proper
performance of the employee’s duties
Square peg, round hole Despite HMRC’s plea that none of the tests were met (that the employee incurred the expenses ‘wholly, exclusively and necessarily’ in the proper performance of his duties and that he was obliged to
| Professional in Payroll, Pensions and Reward | June 2022 | Issue 81 18
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