HMRC have won their case at the Upper Tribunal (UT) concerning deductions against employment income.  The case concerned a doctor who resided in Southampton with his family but agreed to take on a short-term contract at a hospital in London.  He rented a place to live in London and claimed the cost of the rent against his employment income.

The First-tier Tribunal (FTT) found that he had incurred some of the rental expenses in the performance of his employment and that the expenses were incurred ‘wholly, exclusively and necessarily in the performance of the duties of the employment’.  HMRC disagreed with the FTT’s findings and appealed to the UT.

Before the hearing at the UT the taxpayer withdrew his appeal as he was concerned about having to cover HMRC’s costs.  HMRC agreed not to seek to recover costs but the hearing went ahead without the taxpayer being present or being represented.

HMRC had three grounds of appeal and the UT found in HMRC’s favour on each of the grounds even though HMRC only needed to be successful on one ground for their appeal be successful.

The first ground was that the FTT erred in law in finding that the taxpayer was obliged to incur the rental expense as holder of a doctor position in a London hospital.  The UT agreed with HMRC finding that the taxpayer had chosen not to move his family from Southampton, for whatever reason, and therefore it was his option to incur the rental expenses.

The second ground was that the FTT erred in law in finding that the taxpayer had incurred the rental expenses ‘wholly and exclusively’ in the performance of his duties.  The UT found that this was plainly incorrect since the doctor was living and sleeping at the property and these were not part of duties as a doctor.

The third ground was that the FTT erred n law in finding that that the taxpayer had incurred the expenditure ‘in the performance of his duties’.  The UT found that while some of his duties were performed at his temporary home the expenditure was incurred to provide him accommodation and working from his temporary home was incidental to him residing there temporarily.

The appeal was allowed in HMRC’s favour.

The decision can be found at: THE COMMISSIONERS FOR HIS MAJESTY’S REVENUE AND CUSTOMS v JAYANTH KUNJUR [2023] UKUT 00154 (TCC) – GOV.UK (www.gov.uk)

This case highlights that incorrect decisions can be made by the FTT in taxpayers’ favour.  The ability to deduct expenses from employment income has always been very restricted and settled case law has shown how difficult it is to demonstrate that expenditure has been incurred ‘wholly, exclusively and necessarily in the performance of duties’.  This UT ruling aligns this case with established case law.

Please contact if you have any questions on income tax and allowable deductions.  The above case highlights that making incorrect deductions can be very costly.