Wife’s wages, motoring, estimates and negligence. It sounds like an expenses whodunnit, but not a single MP was involved in this tax case about deductions. 


Mr Evans, a tax inspector left HMRC for employment as a Clerk to the Commissioners. His job involved clerking: attending tax tribunal hearings and assisting the Commissioners.

HMRC reviewed his tax return and made discovery assessments going back 6 years on the basis that he had been overclaimed employment expenses, these were in respect of motor expenses and a deduction for wife’s wages. Then it charged him tax penalties for negligence.

Motor expenses

Although reimbursed mileage for hearings, Mr Evans also claimed mileage costs in respect of business travel to the homes of General Commissioners to discuss business matters; travel to stationers to purchase or photocopy forms, letters, notices and the like; and travel to purchase postage stamps. 

  • Mr Evans did not keep a record of these business miles travelled.
  • He estimated that his journeys involved a 25 mile round trip and claimed around about £1,300 per year.

HMRC decided that an average of 10 miles per week gave annual business mileage of 500.  On the basis of HMRC's Authorised Milegage Rates at 40p per mile this would allow a deduction of £200.

The Tribunal used the distance of 25 miles and the cost of 40p per mile and substituted an allowable deduction of £500 per annum. 

Wife’s wages 

Although Mr Evans was an employee it was agreed that it was both necessary and essential for a clerk to have secretarial support: normally an employer would provide for this cost. In this case the employer did not, so the expense of paying for support was accepted as an allowable deduction against the clerk’s employment income. 

Hours and duties

  • The wife worked between 5 hours and 3 days per week (the lower estimate was HMRC’s and the upper one was the Tribunal’s).
  • Her duties were providing secretarial support for her husband the clerk.
  • There was some out-of-hours work, but it was a part-time role and it would be difficult to find someone willing to work on that basis.

  • Rate of pay

    Mr Evans was essentially income shifting, he claimed a deduction for his wife of a flat one-third of his income. The Tribunal found that this “does not determine an appropriate rate of pay,” it amounted to nearly £15,000 per annum. Was this rate proportional to the duties undertaken?

    HMRC argued that £10 per hour was an appropriate rate of pay, so the sum should be reduced to £2,500.

    The Tribunal overruled this and agreed a figure of £10,000.

    The joint bank account problem: was a payment actually made?

    The clerk’s wages were paid into a joint account. No wages were physically paid to the wife in cash. HMRC argued that wages were not actually paid or defrayed.
    The Tribunal found that Mrs Evans had a right to draw out of the joint account amounts equal to her secretarial remuneration (if she wanted to). The money was placed unreservedly at the disposal of Mrs Evans and so was equivalent to payment. 

Tax penalties for ex-inspectors 

What tax penalty would apply when a former HMRC inspector was found over claiming expenses on his tax return?

Under the old rules (which apply to income tax returns for periods before April 2008), a tax penalty is due if the taxpayer has been negligent. The Tribunal considered that there was negligence on the part of Mr Evans in submitting his tax returns, given the adjustments decided. 

A tax penalty for negligence under the old penalty system starts at 100% of the tax at stake and is reduced according to three different factors: 


Maximum reduction







HMRC decided that Mr Evans should have his penalty abated by the following reductions:

Disclosure 10%
Co-operation 35%
Gravity 20%
which left a penalty of 35%. 

The Tribunal considered that the abatement given in relation to co-operation was generous and increased it by 5%. This produced a penalty of 40%. 


Key points

How the Tribunal dealt with estimates and penalties: agreed a figure 4 times higher than HMRC’s for wife’s wages and 2.5 time higher than HMRC’s for motoring. It increased penalties, apparently on the basis that HMRC was being soft on an ex-inspector. HMRC agreed wife’s secretarial fees at £10 per hour.

HMRC have moved on from arguing that wives should be paid the National Minimum Wage (this case covered the years 1996 to 2004, those who remember Arctic Systems will remember HMRC arguing for NMW rates for 1996-98). It is always advisable to review this type of deduction, if in doubt consider what you would pay on an arm’s length basis.

We have confirmation that "if in doubt" go to the Tribunal. HMRC's estimates for deductions were so low that observers may conclude that the inspectors working on the case had completed their training in the third world.

It is not clear from the judgment, but it appears that this case relates to expenses going back 7 years. Tax and penalties on that basis would seem disproportionately high to the uninformed taxpayer. It seems unlikely that Mr Evan’s appreciated this could happen: it is very easy to become complacent over the years, and he was after all an ex-inspector.

Case: Mr Evans v HMRC TC 0046