Being self-employed, a freelancer or micro business owner who works from home, you will know that the cost of travel from your home-office to your clients’ workplace can be a major expense.
So perhaps you won’t feel too pleased when I tell you that there is a big question mark over whether this is any longer going to be allowable as a business expense, writes Sumit Agarwal, managing director of DNS Associates.
Your likely disappointment stems from a Dr. Samad Samadian who, in January, went before the Upper Tier Tribunal (UTT) which, in backing the decision of the First Tier Tribunal, has disallowed the cost of his travel from his home-office to his clients’ premises. Might this lost appeal for the taxpayer mark the end of this important expenses allowance for thousands of industrious freelancers and contractors?
Review of the case
Dr. Samadian is employed by the NHS, but runs a private practice as a self-employed doctor. His home-office is the base of operations for his self-employed business, and in addition he runs clinics from two other bases, both of which are located in private hospitals. The disputed tax deductions relate to the cost of travel to and from all three bases from which he operates.
Ordinarily, the cost of travel between various temporary workplaces in the course of employed or self-employed work is tax deductible. And while the UTT allowed the cost of travel between the two private hospitals, it refused a deduction where the travel started and ended at Dr. Samadian’s home. This, the UTT considered, involved journeys that fell foul of a fundamental tax rule.
The fundamental tax rule in relation to expenses
The reasoning behind the UTT’s refusal to allow the expense was the fundamental principle of the “wholly and exclusively” concept. Under this rule, travel to Dr. Samadian’s home involved a dual purpose -- even though the doctor used his home-office as the base of operations for his self-employed business, it was also seen as the family home, thus any journey between his home-office and the other two bases had two purposes: personal and business. If the expense is not ‘wholly and exclusively’ for business, the business cannot be allowed the tax deduction. This appears to be extremely straightforward.
The UTT did, however, allow the doctor’s travel expenses from his home-office to a patient’s home. The reason this was allowed is that there was no evidence of a regular pattern or frequent travel between these places. And this is where the trouble begins, because many of our contractors, freelancers and small business clients travel to their clients’ premises on a frequent basis. Often, they are on short-term contracts and their travel usually falls within the “temporary workplace” rule.
The question marks industry has against some of the issues
- Who falls within the “temporary workplace” rule and thus is able to claim for travel made on that basis?
- Does this rule extend to employees who work from home and visit the same client or clients on a regular basis?
- Does the concept “wholly and exclusively” encapsulate all those people who are self-employed and working from home?
My fear is that HM Revenue & Customs may start attacking the travel expense claims for most of the self-employed, and anyone else who works from a home-office, who travels to their client’s premises on a regular basis. These hard-working taxpayers are an easy target, but I would argue that it is very hard for them to avoid a regular pattern of travel, which may well fall within this murky area between “wholly and exclusively” and the “temporary workplace” rule.
Guidance for freelancers
The freelance contracting industry is, and has been for a number of years, under huge pressure, given that legislation around this area has been released on an almost never-ending basis. I see these rulings against the doctor as another blow to the industry, hitting hard the self-employed and those running small businesses from a home-office.
Until clearer guidance is given on the concept of the ‘temporary workplace,’ I suggest that contractors, freelancers and small businesses who are based mainly from a home-office, should continue to claim travel expenses. Yes, as I have outlined, there is some doubt relating to the concept “wholly and exclusively” when the home-office is the main base, but this is nothing new. In fact the question has been waiting for a definite answer for some twenty years.
So to summarise, I do not see Dr. Samadian’s current misfortune as any sort of new development, and HMRC is surely aware that many of us may be thinking this. My message is this -- before you get scared into caution on expenses, and stop claiming and thereby lose the tax benefit, I recommend that you wait for clarification on this area. We’re certainly not the only tax specialists for self-employed people with concerns, so hopefully the Revenue (or the courts if the doctor appeals the UTT’s ruling) will see that we, and especially our clients, deserve some clarity.
Editor's Note: Further Reading -