CH/3701/2016 - apportionment of s/e expenses (business / domestic)

I have uploaded a copy of CH/3701/2016.  (See [25]),

Stainsby - 23 July 2018 02:38 PM

I have uploaded a copy of CH/3701/2016.  (See [25]),

Thanx! where did you find it out of interest?

This decision needs to be carefully distinguished from R(H) 5/07, of which the UT in the more recent case appears to have been unaware.

In CH/3701/2016 it appears that the claimant was a self-employed Trade Union rep (who knew?).  Some of the expenses he was claiming do not appear to have the remotest connection with that work: toiletries, dentistry, medicine, vacuum cleaner, washing machine, carpet.  The Judge agrees with the Council that these are not business expenses at all, but at paras 24 and 25 adds that “even if they were for both personal and business use, such items could not fall within the wholly and exclusively test.”

It is those comments that some local authorities have seized on and started to disallow any expense that might have some dual business and personal aspects.  There are two kinds of dual purpose expense:

- business use that directly incurs additional cost, but the same item also has personal use.  For example metered phone calls or burning fuel on a business trip in your own car, or switching the heating on while working at home during winter so you consume more gas/electricity than you would have done for personal use only: these are uncontroversial and allowable (indeed there seem to have been expenses of that type that were allowed in 3701/2016- the decision refers to utility costs)
- flat rate costs that wouldn’t be any different if you didn’t use the item for business at all: vehicle tax, MOT, insurance (depending on what/whom you are carrying this might not be flat rate), fuel standing charges, line rental, finance on a car

I can see that there is an argument for disallowing the latter, although the counter-argument in some cases would be that the claimant would not have acquired the item at all were it not for their business, but since they have it now they might as well use it for personal stuff as well.  This was addressed in R(H) 5/07 which is both a reported decision and also one which turned directly on the point (whereas the comments in 3701/2016 are obiter-ish I think).  In addition, R(H) 5/07 follows the approach in an earlier reported decision, R(FC) 1/91.

Here is the extract that covers it:

24. In R(FC) 1/91 it was held, in relation to the identical wording in the legislation there applicable, that motoring expenses (including road fund licence and insurance) and telephone expenses (including rental charges) were apportionable by reference to the amount of business use made of the car or telephone. Mr Commissioner Hallett, after a review of tax cases and practice, rejected the submission on behalf of the Secretary of State that items such as road fund licence and insurance, and telephone rental charges, could not be apportioned because (unlike, for example, petrol or the telephone call charges) no proportion or part of them could be said to relate exclusively to business use.  He said (at paragraph 34):

“When a motor car is used for the delivery of goods and stock, or by a barrister travelling from one court to another, or a plumber to attend a leak, that car is being used wholly and exclusively for business purposes and all the expenses of using that car should be allowed. It is not suggested that the cost of the petrol cannot be apportioned … . But the petrol in a car tank, where the car is also used for private purposes will often be consumed during one period of time on business and at another for private use. Why then, one may ask, cannot the licence fee, insurance premiums, maintenance costs be similarly apportioned so that the cost [is] attributable on a time basis? There is absolutely no justification for a different approach from that adopted by the Revenue on identical words. I agree … that the practice of apportionment is not concessionary. It is simply a method of determining, on a time basis, what proportion of use is wholly and exclusively for business purposes.”

25. In the absence of any authority at all, I would have been minded to think that there is a significant difference between, for example, the cost of petrol, which can be directly related to particular business use, and the cost of insurance or the road tax, which cannot, and that no part of insurance or road tax can properly be said to be “wholly and exclusively incurred” for the purpose of a business. However, I accept that I should follow the principle adopted in R(FC) 1/91. I further accept the Secretary of State’s submission that there is no reason why that principle should not apply to the interest on the car loan, and that the apportionment should be in accordance with the amount of business mileage as a percentage of total mileage in the assessment periods in which the interest is paid.

As HB anorak says, CH/3701/2016 was decided on its own peculiar facts.  It should not be seen as an authority to argue that expenses cannot be apportioned between private and business use.

If Judge West had intended his remarks at [25] to be such authority, it is strongly arguable that CH/3701/2016 was wrongly decided on that point

There are at least 3 reported decisions where a contrary stance was taken and I have uploaded them here