Nichola Ross Martin considers a tax case which features “Auf Wiedersehen Pet” actor Tim Healy and ponders whether actors are itinerant workers for tax purposes.

This article first appeared in Taxation magazine in 2012, Tim Healy’s case went to appeal and has been remitted back to the First Tier Tribunal for a rehearing.

The government is currently consulting on simplified reporting of small business taxation for the self-employed. One of the measures it is considering is a system of fixed flat rate allowances for travel and subsistence expenses.

Travel and subsistence is always coming up in enquiries into the accounts of the self-employed because it is so easy for taxpayers to make errors in claiming these sorts of expenses. Unlike employees, the self-employed have no specially formulated travel rules that dictate when travelling is allowable as a deduction from profits. Whilst employees have it all mapped out for them in section 337 to 342 of ITEPA 2003, the self-employed have to resort to the wholly and exclusively rules, of section 34 ITTOIA 2005 and case law.

If case law were not confusing enough, s34 (2) is destined to muddle everyone it states that “If an expense is incurred for more than one purpose, this section does not prohibit a deduction for any identifiable part or identifiable proportion of the expense which is incurred wholly and exclusively for the purpose of the trade.” I have a hunch that many tax inspectors are trained to ignore this part, and so what happens in practice if you are not represented (or sometimes if you are) is that HMRC will turn a deaf ear on pleas for apportionment and deductibility and start quoting cases like Mallalieu v Drummond 57 TC 330 (clothing duality of purpose) and Caillibotte (HMIT) v Quinn 50 TC 222 (lunch duality of purpose) and Mason v Tyson 53 TC 333 (accommodation duality of purpose). The outcome in a lot of cases is an exhausting battle of letter writing and it is rare for most represented taxpayers to take cases to the Tribunal on the grounds of cost.

HMRC practice in relation to travel outwardly appears well documented in its Business Income manual. Whilst all business travel is allowed for tax, it has long been prepared to allow tax relief on the travel, subsistence and accommodation expenses of anyone engaged in a trade or vocation in an “itinerant” trade (or profession). The trouble is that the manual does not list what criteria HMRC is prepared to use in deciding what trades or professions are itinerant by nature and so each case has to be determined according to its merits.

For many years HMRC operated an unpublished extra statutory concession in respect of subsistence expenses incurred by itinerant workers. This was legislated in The Enactment of Extra-Statutory Concessions Order 2009 and section 57A Expenses incurred by traders on food and drink” was duly inserted into ITTOIA 2005 in 2009/10. It says:

(1) In calculating the profits of a trade, a deduction is allowed for any reasonable expenses incurred on food or drink for consumption by the trader at a place to which the trader travels in the course of carrying on the trade, or while travelling to a place in the course of carrying on the trade, if conditions A and B are met.

(2) Condition A is met if—

(a) a deduction is allowed for the expenses incurred by the trader in travelling to the place, or

(b) where the expenses of travelling to the place are not incurred by the trader, a deduction would be allowed for them if they were.

(3) Condition B is met if—

(a) at the time the expenses are incurred on the food or drink, the trade is by its nature itinerant, or

(b) the trader does not travel to the place more than occasionally in the course of carrying on the trade and either—

(I) the travel in connection with which the expenses are incurred on the food or drink is undertaken otherwise than as part of the trader’s normal pattern of travel in the course of carrying on the trade, or

(ii) the trader does not have such a normal pattern of travel.

(2) The amendment made by this article has effect for the tax year 2009-10 and subsequent tax years

Given the on-going review of small business tax, it is now probably a good time to have a go at explaining who in modern day Britain is itinerant and who is not. Thankfully we have the internet and what a treasure trove for definitions of “itinerant” it provides. A year or so ago you could google away and find nothing, but now, due to the inclusion of John Steinbeck’s Of Mice and Men on to the GCSE reading list everyone now knows what is meant by an itinerant worker, there are explanations everywhere online.

Basically, an itinerant worker is someone who travels from place to place in search of work and to work before moving on again to the next job. In 1930’s America these workers were predominantly engaged in agriculture and they were put up in bunk houses although the effect of the Great Depression was to encourage just about everyone to get on their bike and find some work.

These days in the UK the Gangmasters’ Licencing rules ensure that the majority of itinerant workers working in the agriculture, forestry, horticulture, shellfish-gathering or food processing and packaging are most likely to be under PAYE. Likewise most agency workers in other industries are under PAYE, unless they run their own service companies.

The construction industry is the other major user of itinerant workers, but it appears to have been better historically at political lobbying because it has managed to avoid Gangmaster rules and compulsory PAYE and so we have the Construction Industry Scheme rules, unless workers are supplied by an agency which has to subject them to PAYE under the agency rules.

Modern itinerant workers unless they are of the Romany/Traveller variety tend to have a fixed business address unlike those in Steinbeck’s time. It may be that in the future we can all genuinely claim to be working “in the Cloud” but that time is some way off.

Past case tax law only confirms only that construction trades are itinerant (see Horton v Young 47TC60), although in Newsom v Robinson 33 TC (barrister’s home to work travel) Denning LJ was cunning enough to confirm his view that a barrister’s travel between chambers and court is allowed for tax thus potentially saving that branch of the legal profession years of taxing argument. Like an itinerant worker a barrister is moving between venues for different jobs.

So who else can be regarded as itinerant? It should all be so obvious but actually when push comes to shove with HMRC it is not at all. A recent tax case before the First Tier Tax Tribunal featured “Auf Wiedersehen Pet” actor Tim Healy. His accountants claimed that as an actor he was itinerant and so all his travel, including accommodation and subsistence expenses would be allowed for tax. This outwardly seems sensible, as the sort of work Mr Healy does takes him to different venues and locations. These vary from a day in a studio recording voice overs to six weeks of panto in Newcastle to six months filming in Spain. In one tax year he took a role in the West End production of Billy Elliot, and decided to rent an apartment in London once the show opened as he could not easily get home at night. The rental was initially for six months that became nine when his contract was extended. The high cost of this accommodation combined with the duration of the rental attracted the attention of HMRC.

Ironically, if the production company had paid for the actor’s accommodation costs there would have been no issues for HMRC. Depending on the contract, that might well happen. In this case, the actor was paid an expense allowance, and he found his own accommodation. The decision to rent was economic and practical, as staying in a flat gave him additional privacy. He went back home at weekends.

Mr Healy claimed accommodation costs of £32,000 together with subsistence expenses and taxi fares estimated by his accountants of around £4,000 odd a-piece. HMRC opened an aspect enquiry into the accounts which featured lots and lots of correspondence which went like this:

Accountants “This is an actor, he is engaged in an itinerant profession, please allow these expenses”

HMRC “Oh, no he is not, we won’t”

Accountants “This is an actor, he is engaged in an itinerant profession, please allow these expenses”

HMRC “Oh, no he is not, we won’t”.

The case went to HMRC which HMRC repeated “Oh, no he is not, we won’t”.

And so the case came to the First Tier Tax Tribunal (FTT) and I represented the taxpayer in his appeal.

The FTT looked at case law and section 34 and decided that the issue was not whether the actor was itinerant or not, nor did it matter if he said that he worked from home. Judge King decided that cases are all different and each needs to be decided according to their own facts. She found that these were that the actor needed to find accommodation somewhere near the theatre and that was wholly and exclusively in connection with his profession as an actor. As he was not seeking a home in London there was no duality of purpose. The judge did not allow costs for food and taxis because there was not enough evidence provided show where meals were taken and where taxis rides went.

That was the result that was hoped for. Although the Judge rather neatly avoided too much analysis of “itinerant” which is slightly annoying from a section 57A stalker’s perspective (that section was not enacted in the year under appeal and so was not relevant to the case). During the hearing there was some discussion as to whether HMRC has some scale which indicates how long an actor has to be performing somewhere before HMRC regards that venue as their base of operations and so disallows resultant travel and accommodation costs. That got me thinking; why not just align the travel rules for the self-employed with those of employees? This would mean that someone like an actor could work out their travel according to whether workplaces were temporary or permanent. At the same time, if we correspondingly ditched the term “itinerant” (we would also change section 57A) this might save the Tribunals many years of deciding who or what is itinerant these days, leaving that for Steinbeck enthusiasts and GCSE students. Just a thought.

Case: T Healy v HMRC TC1940 30 March 2012, HMRC have 30 days to appeal.

Further reading:

Self employed: what expenses can I claim?

The Wholly and Exclusively rule...what's new?

HMRC v Tim Healy: Upper Tier Tribunal oft for a rehearing