Alan Pink looks at the tax law when claiming expenses of travel from home, where most of a person’s work is done there.
The importance of the question in the article title relates, of course, to the ability to claim travelling costs from home to where you work.
A simplistic argument would run (and often does run, in correspondence with HMRC) along the following lines: ‘I do so much work at home that my home is effectively my office. Therefore, when I travel from home to anywhere else for work purposes, I’m travelling between two workplaces. Hence the travel costs should be allowable against tax.’
You would have thought that this was an obviously sensible bit of reasoning – although there could be very difficult questions of judgment and degree in deciding whether you did enough work at home for it to be your ‘base’. But unfortunately, that’s not the way those making our tax law think at all.
Employed or self-employed?
The first point to be absolutely clear about, in considering whether you can claim your travel costs or not, is whether you are under the employment or the self-employment tax regime.
We’ll start off by considering the position of the self-employed business person, who is running their business either as a sole trader or in partnership. Here, the basic rule is that expenses are disallowed unless they are incurred ‘wholly and exclusively’ for the purposes of business. To be frank, this phrase in itself sheds virtually no light at all on the key question of whether you can claim travelling expenses from home to some other place where you work. For guidance on this issue, we need to look at some cases.
The first is Newsom v Robertson (H.M. Inspector of Taxes)(1)Robertson (H.M. Inspector of Taxes) v Newsom (1950-1952) 33 TC 452, a Court of Appeal decision concerning a barrister. The barrister worked a lot at home and no doubt considered that it could be seen as a ‘base’ of his business. Nevertheless, travel from home to chambers (traditionally regarded as the base of a barrister’s work) were ruled to be disallowable. Similarly, in Sargent (H.M. Inspector of Taxes) v Barnes(1) (1976-1980) 52 TC 335, and Jackman (HM Inspector of Taxes) v Powell [2004] BTC 336, a dentist and a milkman respectively had home to work travel costs thrown out.
More recently, there was the case of Dr Samadian (Samadian v Revenue and Customs [2014] UKUT 0013 (TCC)). His situation was a bit more complicated, in that he was employed by the NHS at two different locations but also had a private practice involving weekly clinics in two private hospitals, where he was under the self-employed tax code that we are talking about here. Each week, Dr Samadian had a three-hour session at these private hospitals, at which he had the use of a consulting room but was obliged to vacate the room at the end of each session to allow another doctor to occupy it.
The stated facts are that he carried out a ‘considerable’ number of tasks relating to his private work at home, including storage of records, clinical research and preparation of patient care plans. He would even occasionally see patients at home. One has to say, though, that reading between the lines of these facts, it seems likely that the tribunal was not particularly impressed by the balance between the work he did at home and the work he did at the hospitals. For whatever reason, Dr Samadian lost his case in the Upper Tribunal, despite his representatives’ reference to the one major case arguably, that the taxpayer has won on this subject.
This was Horton v Young (H.M. Inspector of Taxes)(1)Weston v Young (H.M. Inspector of Taxes) (1968-1972) 47 TC 60)). Mr Horton was the leader of a team of bricklayers, and his business was based at home - to the extent that it could be regarded as having any real base. There was very little administration involved.
What probably decided the court in favour of the taxpayer here was that the trade of bricklaying was basically all over the place. In one year, Mr Horton had worked at seven different building sites within a 55-mile radius of his home. As such, they were temporary places of work, as distinct from the barrister’s chambers in the Newsom case, and the hospitals in the Samadian case.
The mists clear?
Where does the law stand, then, in the currently very common situation of the self-employed person who now works most of the time at home, but sometimes needs to travel to work somewhere else? The current epidemic (so to speak) of working at home has obviously brought this question into sharp focus.
If a principle does emerge from the various cases, it would be that travel to a ‘temporary’ place (like a professional going to a client’s premises that he doesn’t regularly visit) would be allowed. However, going from home into separate premises of the business would still be disallowable, however infrequently those journeys actually take place.
We have to say that this conclusion, whilst reasonable, can’t really be seen as being closely derived in any way from the only statutory rule we have. Frankly, the judges in the cases have been given the unenviable task of trying to make sense of a rule that, in fact, doesn’t make any sense whatsoever. Any expense incurred for business purposes is open to the charge of having non-business motivations, even if it is only to get rich to buy a nicer house. If we ever want tax to make sense in this country, we need to throw out the ‘wholly and exclusively’ rule. But don’t hold your breath for this!
The employment code
If the individual is classed as an employee, the vague picture presented by the cases struggling to make sense of ‘wholly and exclusively’ becomes a lot clearer.
This is because someone took the trouble, a few years ago, to write the rules down for employee travelling expenses, and whilst they do have some areas of judgment in them, this is a much more coherent set of rules that you can actually follow. And you should bear in mind that if you’re in business on your own account, but you operate through a limited company, you come within the employment code and not the self-employment code.
As an employee, you can claim the costs of travel from home to a temporary workplace, but not to a permanent workplace, so it all hangs on whether your destinations are permanent workplaces or not.
If you go to the same place to work for a period exceeding two years, this will be a permanent workplace. On the other hand, if you go to a place for less than two years, and this is the whole period of the particular employment, it will also be a permanent workplace. This is an area where there has been some confusion recently, as evidenced by posts on the internet on this subject.
The ‘40% rule’ is to the effect that if you spend more than 40% of your time at a particular workplace, this is substantial enough to count potentially as a permanent workplace. But unfortunately, the converse doesn’t apply. If you spend less than this amount of time at a distant office, say, it may still be a permanent workplace because there’s an overriding requirement for somewhere to be regarded as a ‘temporary workplace’, for attendance there to be for some period of limited duration, or for a temporary purpose only. So in the situation where a worker was previously working five days a week at the office and now goes in only one or two days a week, the travelling costs are unfortunately still ordinary commuting and therefore non-claimable.
Conclusion
So what we end up with in a roundabout way (and until the next case comes along) is actually a very similar conclusion for both the employees and the self-employed amongst us. Regardless, it seems, of how much work you actually do at home, the key question relates to the nature of the place you are going to. If this is ‘temporary’ (a matter of vague impression in the case of the self-employed and a fairly closely worded definition in the case of the employee), then you will be able to claim your travelling expenses; otherwise not.
