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HMRC internal manual

Employment Income Manual

The general rule for employees’ expenses: necessarily incurred: an expense is not deductible merely because the employer requires it

You may find that an employer requires or encourages an employee to incur a particularexpense. By itself this is not enough to make the expense “necessary” in thesense that the word is used in Section 336 ITEPA 2003.

In Brown v Bullock (40TC1) a bank manager argued that a subscription to a club wasnecessarily incurred because his employer required him to be a member in order to fostersocial contacts. A deduction was not permitted. Donovan LJ commented on page 10:

“The General Commissioners seem to have accepted this contention, but in my viewit is not correct. The test is not whether the employer imposes the expense but whetherthe duties do, in the sense that, irrespective of what the employer may prescribe, theduties cannot be performed without incurring the particular outlay.”

This comment was quoted with approval by Lord Templeman in his judgement in the case ofFitzpatrick v CIR (66TC407), a case that was concerned with the cost of newspapers boughtby journalists. He went on to add (on page 525):

“It does not matter, therefore, whether in the present case the journalists were contractually bound to their employers to expend money in the purchase of other newspapers and magazines or whether they did so voluntarily. Whether or not a journalist thinks it is necessary to read one or more newspaper and periodical his duty is in the production of his employer’s newspaper and he is not carrying out that duty when he is reading other newspapers.”

This emphasises that whether an expense is necessarily incurred is to be determined bylooking at the duties of the employment and not by looking at the requirement of theemployer. However, it may well be that the requirements of the employer are a relevantfactor in determining what are the duties of the employment.