HM Revenue & Customs v Banerjee

Under the Income and Corporation Taxes Act 1988, employer-required expenditure is not deductible merely because the employment contract imposes it. The expense must be necessarily incurred in performing the duties, rather than simply to qualify or improve the employee, and must be incurred exclusively for those duties.

Training may itself be an employment duty. Where a paid training contract makes practical and theoretical training intrinsic to the job, compulsory attendance can satisfy the statutory test. A resulting professional benefit does not create a disqualifying dual purpose if it is merely incidental and the tribunal finds that the expenditure was incurred solely to comply with employment duties. The outcome is fact-sensitive.

Dr Banerjee, a specialist registrar in dermatology, claimed deductions for expenses incurred in attending compulsory training courses, conferences and meetings during the tax years 1997/98 to 1999/2000. HMRC amended her returns. The General Commissioners allowed her appeals by a majority.

HMRC appealed on a question of law under section 56 of the Taxes Management Act 1970. Henderson J dismissed the appeal in [2009] EWHC 62 (Ch). HMRC appealed to the Court of Appeal, arguing that the training expenses were incurred only to enable Dr Banerjee to perform her clinical duties or to advance her professional qualifications. The central issue was whether the training was itself part of her employment duties and whether the expenditure was incurred exclusively in performing them.

The appeal was dismissed by a majority. Rimer LJ delivered the leading judgment and Hooper LJ agreed. Pitchford LJ dissented and would have allowed the appeal.

1. Statutory test. The words of section 198(1) of the Income and Corporation Taxes Act 1988 impose distinct requirements. The expense must be necessarily incurred in performing the duties of the employment, not merely to qualify the taxpayer or enable better performance. It must also be incurred exclusively in performing those duties. A contractual requirement to incur expenditure is relevant but is not decisive. The authorities, including Brown v Bullock, McKie v Warner, Lupton v Potts and Fitzpatrick, supported that approach.
2. Nature of the employment. The Commissioners’ findings, supplemented by the documentary evidence, entitled Henderson J to treat Dr Banerjee’s successive appointments as paid training contracts. The compulsory practical and theoretical training formed an intrinsic part of the work, was undertaken during normal working hours and was required to maintain her National Training Number. Attendance at the courses was therefore attendance at work, rather than expenditure merely undertaken to qualify for or improve performance of a separate job. The associated travel and accommodation expenses were deductible if the course expenses were deductible.
3. Exclusivity and incidental benefit. The majority construed the Commissioners’ decision as finding that the expenses were incurred exclusively as part of performing employment duties. The prospect of professional advancement was at most a secondary or incidental benefit, not a separate purpose defeating exclusivity. Applying Elwood v Utitz, an incidental personal benefit does not automatically create duality of purpose. The Commissioners were entitled to reach that conclusion on the evidence.
4. Decadt. The apparent difference from Revenue and Customs Commissioners v Decadt was treated as reflecting the fact-sensitive and limited nature of an appeal on a case stated. The correctness of Decadt was not before the court and was not determined.
5. Dissent. Pitchford LJ accepted that the training expenses were necessarily incurred in performing employment duties but considered that the Commissioners had failed to apply the exclusivity requirement. In his view, the evidence showed a concurrent personal purpose of professional self-advancement, which was not made immaterial by the contractual dismissal sanction. He would have restored HMRC’s amendments.

1. Court of Appeal (Civil Division). In [2010] EWCA Civ 843, HMRC’s appeal was dismissed by a majority.
2. High Court, Chancery Division. Henderson J dismissed HMRC’s appeal from the General Commissioners in [2009] EWHC 62 (Ch).
3. General Commissioners of Income Tax. By a majority decision dated 1 August 2005, the Commissioners allowed Dr Banerjee’s appeals against amendments to her tax returns.