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Business Income Manual

HM Revenue & Customs
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Wholly and exclusively: duality of, or non-trade, purpose: travel costs: home to work: predictability of places of work

S34 Income Tax (Trading and Other Income) Act 2005, S54 Corporation Tax Act 2009

Milkman chooses to live away from his round

The costs of travel to and from home and a place of work are not allowable where one of the purposes of the travel is to allow the trader to live away from their place of work. This is because such expenses do not satisfy the statutory test in S34(1)(a) Income Tax (Trading and Other Income) Act 2005 (for unincorporated businesses) and S54(1)(a) Corporation Tax Act 2009 (for companies) that to be allowable the expense must have been incurred ‘wholly and exclusively for the purposes of the trade’.

There are some trades (called ‘itinerant trades’) where the ‘home to work’ travel may be solely for the purpose of the trade - for example a self-employed travelling sales representative. But in such cases you should bear in mind that travel from a home outside the ‘territory’ is not allowable - see Brightman’s remarks quoted in the penultimate paragraph of BIM37620.

The site at which business records (financial, accounting and the like) and ‘tools of the trade’ (clothing, equipment and the like) are kept and maintained does not automatically become the ‘base of operations’. Many self-employed persons keep their business records and some (or all) of the tools of their trade at home.

When considering whether travelling costs are allowable or not you need to establish exactly what is the nature of the taxpayer’s trade, how the business activities are organised and what purpose(s) the journeys to and from home serve. If one of the purposes of the journey is to allow the taxpayer to live away from the place(s) of work then there is inevitable duality of purpose and no deduction is due (see BIM37605). It does not matter that there may also be a business reason for the journey - duality of purpose is fatal to deduction.

In Powell v Jackman [2004] 76 TC 87, Mr Powell operated a milk round under a franchise agreement with Unigate. Every day he travelled from his home to a depot owned by Unigate to collect his milk float and the milk which he delivered on his designated round. There were no office facilities for franchisees at the depot. Unigate would object if a franchisee wished to do all his office work at the depot.

Mr Powell claimed to deduct the expenditure which he incurred in travelling between his home and the depot from the profits of his trade. The Revenue refused the claim. The Special Commissioner allowed the taxpayer’s appeal and held that the expenditure was deductible. The Revenue appealed. In the High Court, Lewison J held that the expenditure was not allowable.

In arriving at her decision, the Special Commissioner found that Powell used his home for business, describing the usage in the following terms:

`The appellant carried out at his home all the activities relating to his business except for the actual delivery of goods. The appellant kept his computer, and all documents, records and other papers relating to his business, at his home. He used part of the sitting room for his business work. His computer, and a separate filing cabinet used for the business, were in the sitting room. The appellant’s home was a place to which people went when they wanted to contact him. Unigate sent correspondence (including correspondence about the franchise agreement) and invoices for suppliers to the appellant at his home address and the appellant issued invoices to his customers at his home address. The invoices issued by the appellant showed the appellant’s name and value added tax number but the telephone number of the depot. The monthly information required for the purposes of the management accounts was also collated at the appellant’s home and sent to the panel accountant from there. The panel accountant communicated with the appellant at his home. The appellant also kept at home his spare uniform, his wet weather wear and drying facilities…

…the appellant’s only office was at his home. The appellant was not permitted to trade from the depot or to state the address of the depot as his business address. It was the appellant’s home address and home telephone number which was notified to all third parties including Unigate, the bank, Customs and Excise and the appellant’s insurers. All the appellant’s written business communications were prepared at, and sent from, his home address and he received all business communications at that address.

In the normal course the appellant did not sell milk or goods from his home. At Christmas time he kept dry goods hampers there for delivery to customers. One year he could not deliver a frozen meat hamper to a customer who was not in when he called and so he put the contents in his home freezer.’

In the High Court Lewison J began by identifying the relevant statutory provision, which is now S34(1)(a) ITTOIA 2005, going on to describe the factual background as found by the Special Commissioner and then identified inconsistencies in the findings of fact, for example:

`…the special commissioner said in para.20 of her decision that the appellant carried out at his home all the activities relating to his business except for the actual delivery of goods. This view of the appellant’s activities at home seems to me to be inconsistent with other findings which the special commissioner made. She found, for example, in para.18 that he ordered his goods from Unigate at the depot, and it is plain that the contracts for the supply of those goods was made at the depot. The goods were also delivered to the appellant at the depot, and on his round the appellant not only delivered goods but he also made the contracts with the customers to supply them with milk.’

Lewison J quoted with approval Romer J’s description of the statutory test as given in Bentleys Stokes & Lowless v Beeson (HMIT) [1951] 33 TC 491 (see BIM37400). That is to say the sole question is whether the expenditure in question was ‘exclusively’ laid out for business purposes.

After reviewing the case of Newsom v Robertson [1952] 33 TC 452 (BIM37605), the Special Commissioner said that she needed to identify a ‘base of operations’ and that this was the taxpayer’s home. Lewison explained that the Special Commissioner was in error both as to the need to identify a so-called ‘base of operations’ and in identifying the taxpayer’s home to be such:

`I regret to say that, in deriving the principle that it is necessary to define the base of the trading operation from this authority, the special commissioner did err in law. It is not in all cases necessary to do that, and it was only Denning LJ who elevated that into a test. The test remains the statutory test and, as Oliver J pointed out in Sargent (HMIT) v Barnes [1978] 52 TC 335 at page 328 [see BIM37630]:

"The statute here lays down a test in express terms, and although analogies and examples may be useful guides the propounding of general propositions which involve the use of analogous, but not precisely equivalent terms, can lead to confusion. In the ultimate analysis, the court simply has to look at the facts of the case before it and apply to those facts the statutory formula."’

You should notice Lewison J’s emphasis on the need to apply the statutory test rather than particular verbal glosses that Judges have placed on the test from time to time.

Lewison J then distinguished the milkman’s circumstances from those in Horton v Young [1971] 47 TC 60 (see BIM37620). Denning LJ in the Court of Appeal in Horton had found for the taxpayer in the following terms:

`On the finding of the Commissioners there is only one reasonable inference to draw from the primary facts. It is that Mr Horton’s house at Eastbourne was the locus in quo of the trade, from which it radiated as a centre. He went from it to the surrounding sites according as his work demanded.’

Lewison J contrasted Horton’s circumstances with those of a milkman operating a milk round:

`It seems to me that the phrase “according as his work demanded” is an important one. There was no predictability about Mr. Horton’s places of work when he was employed on a bricklaying subcontract. He would have to go wherever Mr. Page’s [the contractor for whom Mr Horton worked] main contracts took him.’

Lewison J observed that Mr Horton entered into the contracts at home, that those contracts took Horton to many and various sites, each for only a short period of time, the location of sites was unpredictable. Each of the judges had recognised that the test (and the only test which must be applied) is to decide whether the expenses are monies wholly and exclusively laid out or expended for the purposes of the trade or profession. And each case turns on its own facts. Lewison J summed up thus:

`In reaching her decision…the special commissioner, in my judgment, overlooked the differences between Mr Powell and Mr Horton which I have pointed out. She also appears to have taken the view that the round, which was a collection of some 35 fixed streets, could not be a base of operation because it would have been what she called a shifting base. She seems to have taken the view that an area, as opposed to a single place, could not be a base of operation. That is not what Horton v Young decides. Horton v Young was a case where Mr Horton’s places of work were entirely unpredictable. As Brightman J recognised at first instance, it is quite possible to have a base of operation or place of work which is an area rather than a single place. If analogies are to be drawn with decided cases, Mr Powell’s position is plainly, in my judgment, analogous to the commercial traveller described by Brightman J who has a home in London and an area of operation in Cornwall. In the present case Mr Powell had his home in Agar Close and his round surrounding the depot in central Reigate.’