Beware travel and subsistence costs for the self employed

You may remember the case of Dr Samadian, the NHS consultant doing private work, and his travel costs - or lack of! After an enquiry lasting around seven to eight years and four Tribunal hearings, the Upper Tribunal disallowed the travelling expenses of an NHS consultant doing private work. The costs of getting to and from the private hospitals from both the NHS hospital and his home were disallowed as not incurred wholly and exclusively for the purposes of his trade.

A more recent case has emphasised this point. The case involved a self-employed flying instructor and examiner who gave lessons and conducted examinations at two airports. The taxpayer claimed the cost of travel by car between his home and the airports and HMRC decided that the taxpayer was not entitled to deduct his travel expenses as they were not wholly and exclusively incurred for the purposes of his business.

HMRC issued discovery assessments and a closure notice for 2003/04 to 2006/07 and 2008/09 totalling £9,434.79.

The taxpayer keeps his business records, as well as equipment such as charts and navigation equipment, at his home but does not have an office in his home. He uses a laptop for business purposes and might use it in any one of a numbers of rooms in his house.

The taxpayer's home address is that at which he is registered with the Civil Aviation Authority (CAA), which contacts him at that address. The taxpayer reads any new CAA materials in order to stay up to date as an examiner at home. His home telephone number is on the CAA website and people can contact him as a result of that but most of his work comes from recommendations by word of mouth.

The main case which went in the taxpayer's favour many years ago was involved Mr Horton, who worked at seven different sites, between 5 and 55 miles from his home, and claimed the costs as allowable. The Court held that these costs were allowable:

'In my view, where a person has no fixed place or places at which he carries on his trade or profession but moves continually from one place to another, at each of which he consecutively exercises his trade or profession on a purely temporary basis and then departs, his trade or profession being in that sense of an itinerant nature, the travelling expenses of that person between his home and the places where from time to time he happens to be exercising his trade or profession will normally be, and are in the case before me, wholly and exclusively laid out or expended for the purposes of that trade or profession.'

A number of things are clear from these cases:

• HMRC are actively targeting this issue - this is not just an issue for NHS consultants but any self-employed person who 'works from home'.

• The historic cases set a high bar that some clients will not pass.

• The 'pain' of HMRC's adjustments may spiral backwards over several years due to the changes in case law on discovery.

So the moral appears to be to have a close look at clients' travel and subsistence claims in light of these recent cases and, perhaps, moderate claims going forward.