Mr Justice Henderson:
Introduction
- This is an appeal by case stated brought by the Commissioners for Her Majesty's Revenue & Customs ("the Revenue") against a majority decision of the General Commissioners for the Division of North West London at a hearing on 1 August 2005. The respondent taxpayer is a consultant dermatologist, Dr Piu Banerjee.
- The sole issue at the hearing before the General Commissioners was whether Dr Banerjee was entitled to claim deductions under section 198 of the Income and Corporation Taxes Act 1988 ("ICTA 1988") from her pay as a specialist registrar in dermatology in the three tax years 1997/98, 1998/9 and 1999/2000 in respect of expenditure incurred by her in attending educational courses, conferences and meetings, including associated costs of travel and accommodation. The total expenditure claimed by her for each of the three years was £2,700, £3,750 and £2,050 respectively. These amounts were disallowed by way of amendments to her self assessment tax returns, as notified to her by three letters dated 3 December 2003. On 31 December 2003 Dr Banerjee appealed against the amendments.
- At the hearing before the Commissioners Dr Banerjee was represented by her agent, Dr R J Stanbridge of Stanbridge Associates Ltd, who are a firm of specialist medical accountants. The Revenue were represented by an officer of the Board, Mr Roy Woodger.
- On the appeal to this Court I have had the benefit of clear and helpful arguments from Mr Sam Grodzinski of counsel, appearing for the Revenue, and from Mr Julian Hickey, a solicitor advocate and partner of Berwin Leighton Paisner LLP, for Dr Banerjee. Both Mr Hickey and Berwin Leighton Paisner LLP have given their services on a pro bono basis, and I repeat the gratitude which I expressed to them at the hearing for their assistance.
- An appeal to the High Court from a decision of the General Commissioners lies only on questions of law: see section 56(6) of the Taxes Management Act 1970.
The statutory test of deductibility
- In 1997/98 section 198(1) of ICTA 1988 provided as follows:
"(1) If the holder of an office or employment is necessarily obliged to incur and defray out of the emoluments of that office or employment the expenses of travelling in the performance of the duties of the office or employment … or otherwise to expend money wholly, exclusively and necessarily in the performance of those duties there may be deducted from the emoluments to be assessed the expenses so necessarily incurred and defrayed."
- In the two following years, section 198(1) applied with the amendments to it made by section 61(1) of the Finance Act 1998 and was in the following terms:
"(1) If the holder of an office or employment is obliged to incur and defray out of the emoluments of the office or employment-
(a) qualifying travelling expenses, or
(b) any amount (other than qualifying travelling expenses) expended wholly, exclusively and necessarily in the performance of the duties of the office or employment, there may be deducted from the emoluments to be assessed the amount so incurred and defrayed."
- No issue arises in the present case about the definition of "qualifying travelling expenses", because it is common ground that, if the costs of Dr Banerjee's attendance on or at the courses, conferences and meetings are deductible, the same treatment should be accorded to the associated costs of travel and accommodation. Nor is there any dispute about the amount of any of the expenditure. The only question, therefore, is whether the amounts were expended by her wholly, exclusively and necessarily in the performance of the duties of her employment, and whether she was obliged to incur and defray the expenditure out of the emoluments of her employment. Both sides agree that there is no material difference between the meaning of the relevant statutory language before and after the 1998 amendments. The critical words "wholly, exclusively and necessarily in the performance of [the duties of the office or employment]" are common to both versions, and it is clear that Parliament did not intend in 1998 to alter the very strict interpretation which had consistently been placed upon those words by the Courts.
- As an example of that strict interpretation, it is enough to refer at this stage to what Plowman J said in McKie v Warner [1961] 1 WLR 1230, 40 TC 65, at 1235:
"It has been pointed out many times, and it is unnecessary for me to refer to any of the occasions because it is notorious, that it is very difficult for a taxpayer under Schedule E to bring his expenses within [the statutory predecessor of section 198(1) in rule 7 of Schedule 9 to the Income Tax Act 1952]. In order to succeed in a claim under the rule the taxpayer has to prove, first of all, that the expense is one which he was necessarily obliged to incur and, secondly, that it was incurred wholly, exclusively and necessarily in the performance of his duties.
As regards the first of those two requirements, the authorities show that the word "necessarily" in the expression "necessarily obliged to incur" refers to the necessities of the office or the employment. In order to qualify, the expense must have been necessitated by the duties of the employment. The fact that it was required by the employer is not sufficient, nor is the fact that it was thought to be necessary by the employee.
…
As regards the second requirement, the authorities show that the expression "in the performance of the said duties" is a very stringent one: it has quite a different connotation from what I might call the corresponding provision in section 137 of the Act relating to expenses for purposes of Schedule D, where the relevant words are "for the purposes of". In rule 7, the necessity for expenditure "in the performance of the said duties" means that the sum in question must be defrayed in the actual discharge of the duties – "in doing the work of the office" is the expression which Rowlatt J used in Nolder v Walters, [(1930) 15 TC 380, at page 387]. But, even if the expenditure was necessarily incurred in doing the work of the office, it must also have been defrayed wholly in discharge of the duties and exclusively in the discharge of the duties."
- In relation to the first requirement, Plowman J referred to the judgment of Donovan LJ in the Court of Appeal in Brown v Bullock [1961] 1 WLR 1095, 40 TC 1, (the well-known case about the bank manager who was required to join a West End club for the purpose of entertaining customers), where he said at 1102:
"The test is not simply whether the employer imposes the expense, but primarily whether the duties do, in the sense that irrespective of what the employer may prescribe, the duties themselves involve the particular outlay. This result follows in my opinion from the decision of the House of Lords in Ricketts v Colquhoun [1926] AC 1."
- It is, however, important to note what Donovan LJ went on to say immediately after the passage which I have just quoted:
"Mr Monroe [counsel for the taxpayer, Mr H H Monroe QC] has conceded that even if the Midland Bank did not request and expect the taxpayer to join a club like the Devonshire Club, he could still perform his duties as bank manager; and that if the test is the strictly objective one which I have stated, he must fail."
The case was therefore not one where, on a strictly objective appraisal, the duties of the employment themselves required the expenditure in question to be incurred.
The facts
- The primary facts found by the General Commissioners are set out in paragraph 5 of the case stated, and may be summarised as follows:
(1) From 7 October 1996 until 13 March 2001 Dr Banerjee was continuously employed as a specialist registrar in dermatology by two NHS Trusts in South West London. From 7 October 1996 to 4 October 1998, and from 11 October 1999 to 13 March 2001, she worked at St George's Hospital and was employed by the St George's Healthcare NHS Trust. For the intermediate period from 5 October 1998 to 10 October 1999 she was employed by the St Helier NHS Trust.
(2) Throughout her period of employment by both Trusts, the written statement of the terms and conditions of her employment included a training clause which required her to continue to hold a national training number. Her training period lasted for five years, and the obligation to hold a national training number continued throughout the training period.
(3) As the holder of a national training number, Dr Banerjee was required to attend meetings, courses and conferences "in carrying out the duties of her employment" as prescribed by the supervisor and programme director for dermatology specialist registrars in the South Thames area. At the relevant time the supervisor was a Dr Ian White.
(4) All of the courses and training for which Dr Banerjee has claimed the expenses "were compulsory and a pre-requisite of her maintaining her post and employment, and the requirement to remain up to date". Both of her employers required her to undertake these courses, and to incur the expenditure. No qualifying training courses were provided in house, or paid for wholly or in part by her employers.
(5) Dr Banerjee would not have been allowed to continue her employment as a specialist registrar if she had failed to attend the external training sessions, and her compliance was monitored to maintain her national training number.
(6) The arrangement described above was not unique to Dr Banerjee, and applied to all specialist registrars in dermatology during the course of their contracts of employment. The only difference is that some training hospitals provide some in house training and/or some financial assistance.
- In paragraph 5(l) the Commissioners record that it was acknowledged by the Revenue:
(a) that attendance by Dr Banerjee on the training courses was compulsory;
(b) that her attendance was also necessary if she was to proceed to become a consultant dermatologist; and
(c) that if she had not fulfilled her training requirement during her period of employment as a specialist registrar, that employment would have been terminated.
- Following her second period of employment as a specialist registrar at St George's Hospital, Dr Banerjee had a short career break from 14 March 2001 and was then appointed as a consultant dermatologist at another London hospital from 1 August 2001.
- The documents appended to the case stated include a written statement of the terms and conditions of Dr Banerjee's employment by St George's Healthcare NHS Trust dated 6 December 1999 and covering the period from 11 October 1999 to 2 October 2000. Under the heading "Training", it said this:
"Employment is dependent on your continuing to hold a National Training Number. Your fixed term training number is THS/005/005/N.
This placement is for the fourth year of your training programme."
Dr Banerjee's standard hours of duty were 40 hours per week, but the post also carried 23 additional duty hours. Her working pattern was described as "on call". The annual leave entitlement was 6 weeks and 2 days per year plus 8 bank holidays.
- The General Commissioners do not find in terms that Dr Banerjee's attendance at training activities took place during her normal working hours. However, she confirmed at the hearing before me, without objection from the Revenue, that this was indeed the case. She also confirmed that she had given oral evidence to the Commissioners.
- I should also refer to five other documents which are appended to the case stated, and provide further information about the training content of Dr Banerjee's employment. The documents all take the form of letters addressed either to her or "to whom it may concern", and they were evidently obtained by her, or on her behalf, for the purposes of the hearing before the Commissioners. This material obviously needs to be treated with some care, particularly where the writers echo the statutory language or appear to offer an opinion on the very question which the Commissioners had to decide. However, the factual content of the letters is in my judgment important, and the Commissioners were fully entitled to have regard to it in order to supplement and flesh out (but not contradict) the rather uninformative references to training in the written statement of terms and conditions. Although they did not articulate the point, this is clearly not a case where a single written contract contained an exhaustive statement of all the terms and conditions of Dr Banerjee's employment.
- The first letter, dated 3 February 2004, is from a representative of St George's Healthcare NHS Trust. It says that Dr Banerjee's post as a specialist registrar was funded by the South Thames Deanery, and that the duties of the post were determined by the programme director and supervisors of the South Thames specialist registrars.
- The second letter, dated 19 January 2004, is from Dr Ian White, the South Thames supervisor and programme director of dermatology specialist registrars. He states that Dr Banerjee's employment "had mandatory requirements of attending these meetings/courses/conferences in carrying out the duties of the job".
- The third letter, dated 8 June 2004, is from Dr R A Marsden, physician to the skin department at St George's. He describes himself as Dr Banerjee's former senior colleague and supervisor. He says that during her stay with them she was expected, as part of her training, to attend nine courses, which he listed, and which were considered compulsory. He then said:
"I would like to emphasise that the Specialist Registrar post is essentially a training post and that the above courses are a condition of their training and thus the duties of the post as dictated by the Regional Deanery. Seeing patients, i.e. the service commitment, is only one aspect of training."
- The fourth letter, dated 16 June 2004, is from the same representative of St George's Healthcare NHS Trust as the first letter, and merely confirms that the information contained in Dr Marsden's letter is correct.
- The fifth letter, dated 19 April 2005, is from the human resources adviser at St George's, and provides further confirmation that Dr Banerjee's post was a training one:
"Dr Banerjee came as part of the rotation from the London Deanery. The London Deanery is responsible for postgraduate medical and dental training in North and South London. Therefore her post was entirely a training post and all the courses she attended were part of this training, and which were a [pre-requisite] of the post. All these were a requirement of all specialist registrars in her position. In addition, this was a supernumerary post.
Whilst attending these courses she was performing the duties as required by the hospital for this post. All Specialist Registrars are required to undertake these courses and incur the expenditure."
The decision of the General Commissioners
- Paragraph 6 of the case stated records Dr Banerjee's contentions that she was obliged to incur the expenses, that they were incurred in the performance of the duties of her employment, and that they were incurred wholly, exclusively and necessarily in the performance of her duties.
- Paragraph 7 records the Revenue's arguments:
(a) that the fact that Dr Banerjee was obliged by her employer to attend the courses was not sufficient to satisfy the stringent test in section 198, because the duties of the employment themselves must require the outlay; and
(b) the duties of a senior registrar did not require her to attend the courses, with the consequence that the expenses claimed were not deductible.
- Paragraph 8 recorded that, apart from the terms of section 198 itself, five authorities had been "briefly cited" to the Commissioners, including Ricketts v Colquhoun and Nolder v Walters.
- The majority of the General Commissioners then stated their conclusion in paragraph 9 of the case stated. They said that the expenses claimed related to the mandatory requirements of Dr Banerjee's terms and conditions of employment, and "were all incurred wholly and exclusively and necessarily as an intrinsic part of the performance of her duties". They then said:
"The fact that [Dr Banerjee] would have been dismissed for failure to comply meant the fact that the expenditure was also for her professional development and advancement of her knowledge were [sic] of secondary importance."
They accordingly allowed the appeals against the Revenue's amendments, and confirmed the figures shown in Dr Banerjee's original self-assessments.
- Paragraph 10 of the case stated records the view of the dissenting General Commissioner, Mr David Rosten, that the expenses were not allowable because they were not wholly, exclusively and necessarily incurred by Dr Banerjee in the performance of her duties.
Discussion
- The requirements of section 198 are notoriously difficult to satisfy, but that is not to say they can never be satisfied. The critical requirements, as Plowman J said in McKie v Warner, are two in number. First, the obligation to incur the expenditure must be an objective necessity imposed by the duties of the employment itself, in the sense that (as Donovan LJ said in Brown v Bullock, loc. cit.) "irrespective of what the employer may prescribe, the duties themselves involve the particular outlay". Secondly, the expenditure must be incurred in the actual performance of the duties of the employment, and it must also be wholly and exclusively so incurred.
- Wrapped up in this second requirement are a number of important distinctions. Expenditure which is not incurred in the actual performance of the taxpayer's duties, but merely in order to put the taxpayer in a position to perform his or her duties, is not deductible. Again, any duality of purpose is fatal: that is the force of the word "exclusively".
- So, for example, in Blackwell v Mills (1945) 26 TC 468, Macnaghten J allowed an appeal by the Crown from a decision of the General Commissioners in favour of the taxpayer, who was a student assistant in the research laboratories of the General Electric Co Ltd. The judge summarised the facts found by the Commissioners, to the effect that it was a condition of Mr Mills' employment that he should attend classes in preparation for the final examination for the degree of Bachelor of Science in the University of London. He attended evening classes at the Chelsea Polytechnic in order to comply with this condition of his employment, and the company allowed him to leave his work at the laboratories in time to have a meal and get to the Polytechnic before the classes began. He was allowed time off without deduction of pay. The company paid the tuition and examination fees for Mr Mills, and half the cost of his text books. However, Mr Mills had to pay his travelling costs to and from the Polytechnic and half of the cost of his text books. Those were the expenses which he claimed as a deduction from his remuneration, and which the General Commissioners allowed. Macnaghten J rejected the submission for Mr Mills that he should be regarded as performing the duties of his office when he was attending the Chelsea Polytechnic, and said that in his opinion any such view was inadmissible:
"The duties of his employment were as a student assistant in the research laboratories of the General Electric Company. It seems to me impossible to say that, when he was listening to the lecturer at the Chelsea Polytechnic, he was performing the duties of a student assistant at the laboratories of the company."
- It is important to note, in my judgment, that Mr Mills' employment was not, in itself, a training post, although it was a condition of his employment that he should attend the relevant classes, and (as the case stated records) he was given to understand that unless he obtained the specified degree, or its equivalent, he would not be given a post on the scientific staff of the company. It is only because the post was not intrinsically a training post that it was impossible to say that Mr Mills was performing the duties of his employment when he was attending lectures at the Chelsea Polytechnic. Had it been part of his job to attend the lectures, in the sense of being one of the things he was required to do during his working hours, and for which he was being paid, I can see no reason in principle why the expenditure in question should not have been deductible.
- To similar effect, in Lupton v Potts [1969] 1 WLR 1749, 45 TC 643, Plowman J held that a solicitor's articled clerk was not entitled to deduct from the salary paid to him by his principal the fees paid by him for sitting his professional examinations. The General Commissioners had purported to find as a matter of fact, and to hold as a matter of law, that it was an implied term of the taxpayer's articles of clerkship that he should sit for the Law Society's examinations, and they allowed a deduction for the relevant fees. In allowing the Crown's appeal, Plowman J first of all held that there was no basis for the implied term, but went on to hold that the expenditure on the fees was in any event not deductible. He pointed out that the services for which the taxpayer was being remunerated did not, in themselves, require him to incur this expenditure in the performance of his duties. As he said at 1756H:
"In my judgment, the duties of the taxpayer under the contract of employment were perfectly capable of being performed without incurring the particular outlay with which I am concerned in this case. I find it impossible to say that that outlay was necessarily incurred in the performance of those duties."
Plowman J also said that he was not satisfied that the expenditure was incurred exclusively in the performance of the taxpayer's duties under the contract of employment, because part of his purpose in sitting the examinations was "not to benefit or fulfil an obligation to an employer but to benefit himself because he wanted to become a solicitor".
- By contrast, however, the present case seems to me to be clearly distinguishable from cases like Blackwell v Mills and Lupton v Potts. Dr Banerjee's employment as a specialist registrar constituted part of her five year training programme. The post was, in Dr Marsden's words, "essentially a training post", and the courses etc that Dr Banerjee attended formed a mandatory and essential part of her training. The "service commitment" of seeing patients was, of course, another part of her training, but it was not the only part. Her attendance at the courses took place during normal working hours, and was part of the job that she was paid to do. Her post was a supernumerary one, funded by the South Thames Deanery, and not by the NHS Trusts themselves. The purpose of the training was, no doubt, to produce a supply of qualified consultants, as Dr Banerjee herself subsequently became, and thus to improve the specialist knowledge and qualifications of those working in the field of dermatology for the National Health Service.
- In the light of these considerations, the majority of the General Commissioners were in my judgment fully entitled to take the view that attendance at the courses was an objectively necessary requirement of Dr Banerjee's employment itself. The training was an intrinsic part of the job that Dr Banerjee was paid to perform. It was not merely a collateral contractual obligation undertaken by her at her employer's request (as in Brown v Bullock), nor was it an "extra-curricular" obligation that she chose, or was required, to undertake in order to qualify herself to do her job, or improve her prospects of promotion. When Dr Bannerjee was attending a course, she was performing the duties of her employment just as much as when she was attending patients in the hospital wards. This is what the majority meant, as it seems to me, when they said in paragraph 9(c) of the case stated that the expenses claimed were all incurred "as an intrinsic part of the performance of her duties".
- Can it also be said that the relevant expenditure was incurred by Dr Banerjee wholly, exclusively and necessarily in the performance of her duties? No question arises in relation to the adverb "wholly", which is generally agreed to relate only to quantum. Furthermore, the requirement that the expenditure be incurred "necessarily" in the performance of the duties appears to me to be satisfied, for the same reasons that lead to the conclusion that attendance at the courses was a necessary feature of the employment itself. That leaves the additional requirement imposed by the adverb "exclusively", which is directed at duality of purpose. Here too, it seems to me that it was well open to the Commissioners to conclude that Dr Banerjee's sole purpose in attending the courses was to fulfil the duties of her employment. The evidence established that she would have been liable to dismissal had she failed to attend the courses, as the Revenue expressly acknowledged (see paragraph 13(c) above). No doubt attendance at the courses would also promote Dr Banerjee's personal professional development, and advance her knowledge, but the majority of the Commissioners considered that these motives were of secondary importance: see paragraph 9(d) of the case stated. I find it impossible to say that they erred in law in taking this view, given that the post was essentially a training one, and given the sanctions for non-compliance. To assert the contrary would amount to saying that, as a proposition of law, it is impossible for the test in section 198 to be satisfied in any case where the taxpayer is paid to undergo training. Stringent though the section undoubtedly is, I can see no reason why it should be construed in such an extreme way.
- The case for the Revenue, persuasively and skilfully though it was advanced by Mr Grodzinski, seems to me to involve an untenably extreme proposition of the same nature. He submitted that the only conclusion reasonably open to the Commissioners, on the basis of their findings of primary fact, was that the expenditure did not satisfy the requirements of section 198. He pointed out, correctly, that the authorities draw a distinction between expenditure incurred in the performance of the duties of the employment, on the one hand, and expenditure incurred for the purpose of putting oneself in a position to perform those duties, or better to perform them, on the other hand. The only possible view of the evidence, he said, was that Dr Banerjee attended the relevant courses in order to put herself in a position to perform her duties as a doctor, or in order to better qualify herself to perform them. He submitted that the training part of her duties could not properly be regarded as an end in itself, but only as a means whereby she would in due course become a better qualified physician.
- In my judgment these submissions all break down at the same point, because they seek to express as a proposition of law something that is ultimately a question of fact, or more accurately a factual ingredient of a question of mixed fact and law. The legal content of the test in section 198 has been expounded by the courts in a long line of cases, and is indeed strict and difficult to satisfy; but the factual situations to which that test has to be applied are of infinite variety, and it is always necessary to focus on the particular facts of the case in question, and to ask oneself whether they satisfy the statutory criteria. That, it seems to me, is what the majority of the Commissioners conscientiously did, and I cannot fault their conclusion. In performing this task, reference to other decided cases is helpful, and indeed necessary, in order to extract the relevant principles of law, but it is liable to mislead if the facts of other cases are treated as though they themselves embodied propositions of law. What the Revenue are trying to do in the present case, it seems to me, is to say that expenditure incurred in performing the duties of a training contract is incapable of qualifying for deduction under section 198. As I have sought to explain, however, that approach goes further than the authorities warrant, and seeks to impose a rigid legal straitjacket on an inquiry which has to be sensitive to the facts of the individual case. It also involves a large element of begging the question which has to be decided, because if the requirement to undergo training is genuinely part of the work which an employee is paid to perform, it cannot legitimately be assumed that the rest of the job is its "real" content and that the training is merely preparatory, or ancillary, to it.
- I have so far said nothing about the recent decision of Patten J in Revenue & Customs Commissioners v Decadt [2007] EWHC 1659 (Ch), [2008] STC 1103, upon which the Revenue understandably place considerable reliance. That was a case with some close factual similarities to the present one, and an order was indeed made by myself in March 2007 for the Revenue's appeals in the two cases to be heard together if Dr Banerjee consented (the application for joinder having been made at a very late stage). In the event, Dr Banerjee did not give her consent, and the Revenue's appeal in Decadt came before Patten J in the High Court on 9 May 2007. Dr Decadt was employed as a specialist registrar in general surgery at North Manchester Healthcare Trust under a contract of employment dated 21 April 1999, which covered the period from 5 April 1999 to 31 October 2005. The findings of fact in the case stated recorded that he had been selected for employment from 180 doctors and had been issued with a national training number for the duration of his participation in the training programme as a specialist registrar. Under the terms of his contract, he was required to attend specific training courses for the purposes of obtaining a Certificate of Completion of Specialist Training ("CCST"). This involved him attending courses, examinations and appraisals at three centres in Bath, Cork and Stockton. He sought to deduct expenditure of £3,054 incurred by him on registration fees, travel and accommodation at these three centres during the tax year 2003/04. The Commissioners found as a fact (in paragraph 6(f) of the case stated) that these attendances were part of Dr Decadt's duties under the agreement. If he felt the work was too arduous or he wished to withdraw, he could decide not to take the exams nor to be appraised and the contract would terminate. At the end of the contract, he was awarded the certificate which allowed him to seek a position as a consultant. There was a shortage of sufficiently qualified surgeons to carry out the work which Dr Decadt did, and the purpose of the contracts with him and other participants in the training programme was to encourage more doctors to become better qualified as specialist surgeons.
- Against this background, the Commissioners concluded as follows (see paragraph 10(a) of the case stated):
"We consider that the respondent was not only employed as a specialist registrar trainee but it was inherent in his contract that he would obtain the CCST so that he could become a specialist surgeon. The North Manchester Healthcare [Trust], along with other healthcare authorities, is a training authority for specialist surgeons and therefore made passing the examination an obligatory part of the contract of employment."
They accordingly allowed Dr Decadt's appeal.
- On the Revenue's appeal to the High Court, Dr Decadt did not appear and was not represented. The Revenue appeared by counsel, Mr Akash Nawbatt. In an extempore judgment, Patten J allowed the Revenue's appeal. The relevant provisions which govern allowable expenditure were by this time contained in section 336(1) of the Income Tax (Earnings and Pensions) Act 2003 ("ITEPA 2003"), but it was not suggested that the test was in substance any different from that previously embodied in section 198. In paragraph 5 of his judgment, Patten J said:
"It has been decided by a series of cases that, for expenditure which is incurred as a term of a contract of employment to be deductible it has not only to be incurred in the sense that the taxpayer is obliged to incur it as part of his employment, but it has to be necessarily incurred as a result of the nature of the duties of the employment."
He then referred to Blackwell v Mills, to the decision of the House of Lords in Fitzpatrick v IRC [1994] 1 WLR 306, 66 TC 407, and to a recent decision of a Special Commissioner, Dr Nuala Brice, in Snowdon v Charnock [2001] STC (SCD) 152. In the last of those cases, Dr Brice had to consider the terms of a contract under which the taxpayer was employed as a specialist registrar trainee in psychotherapy, and was obliged by his contract to attend personal therapy sessions at least three times weekly. The question was whether the expenses of attending the therapy sessions were allowable deductions from the taxpayer's emoluments. In deciding the case against the taxpayer, Dr Brice referred to the distinction drawn in the authorities, between expenditure incurred in the performance of duties (which is deductible) from expenditure incurred to put the taxpayer in a position to perform the duties (which is not), and found that the duties of the taxpayer were as a specialist registrar trainee:
"The personal psychotherapy sessions were for the purpose of enabling him to acquire his additional qualifications in psychotherapy and were not in the performance of his duties."
- Having quoted Dr Brice's conclusion, Patten J said that the distinction drawn by her was an important one, and decisive for the purposes of the appeal before him. The core of his reasoning is to be found in paragraphs 13 and 14 of his judgment, as follows:
"13. For the purposes of this appeal I am prepared to accept that the respondent is correct, and that under the terms of the contract there is an obligation on him to undergo the course of training referred to and to sit the examinations, which he has done with the consequent expense. That course of training I do not doubt for a moment, better qualifies him to practice both as a specialist surgical registrar and in due course as a consultant surgeon, but it is clear from the authorities that I have referred to that the fact that the training in question is mandatory under the terms of the training proper, is not enough in itself to render the relevant expenditure allowable. As Dr Brice indicated in her judgment, the cases distinguish between time spent undergoing clearly relevant and perhaps on one view necessary training, from time spent in actually carrying out the duties of the office or employment in question. The costs and expenses involved in undergoing training to qualify the taxpayer to carry out those duties are not themselves deductible as expenditure within the meaning of section 336 of [ITEPA 2003].
14. The General Commissioners approached this matter simply by asking themselves whether or not it was part or a term of the contract that Dr Decadt should obtain the CCST in order to become a specialist surgeon. They seem to have regarded that as decisive of the outcome of the appeal. In my judgment, that was an error of law. It is clear, as I have already indicated, that the fact that the training is undergone as a term of the contract is not of itself enough."
- There are obviously some close similarities between the terms of Dr Decadt's employment as a specialist registrar in general surgery in North Manchester and the terms of Dr Banerjee's employment as a specialist registrar in dermatology in South West London. Indeed, I strongly suspect that a detailed examination of the full facts surrounding both their employments would show them to be indistinguishable. However, an appeal to the High Court is concerned only with the facts actually found by the General or Special Commissioners in the case under appeal, and with the application of the law to the facts so found. It is unnecessary for me to say whether I would have reached the same conclusion as Patten J if I had heard Dr Decadt's appeal, and I certainly do not wish to suggest that it was wrongly decided. The contract in question was not identical to Dr Banerjee's, and so far as one can tell from the report there was no documentary evidence before the Commissioners equivalent to the five letters in the present case. The distinction of law drawn by Dr Brice, and applied by Patten J, is unquestionably correct, and Mr Hickey in his submissions for Dr Banerjee did not for a moment seek to question it. He submitted, however, that every case turns on its own facts, and I should not be deflected by the decision in Decadt from asking myself whether the Commissioners in the present case were entitled to reach the conclusion which they did. I agree, and although it may seem unfortunate that the conclusion which I have reached in this case is different from the conclusion reached by Patten J in Decadt, the difference merely reflects the very limited and non-inquisitorial role which the High Court has on appeals of this nature.
- I should refer finally to the decision of the House of Lords in Fitzpatrick. The case was concerned with the deductibility of allowances paid to journalists in reimbursement of the cost of newspapers and periodicals bought and read by them outside normal office hours. The curiosity of the case was that different results had been reached in the cases of a number of Scottish journalists, on the one hand, and a number of English journalists, on the other hand. The cases followed entirely separate paths until they were heard together in the House of Lords. In the Scottish cases, the Special Commissioners had refused to allow a deduction under the statutory predecessor of section 198 on the basis that reading the newspapers and periodicals merely provided the taxpayers with background material with which to approach their tasks as journalists, and was not part of the actual performance of their duties. In England, however, the General Commissioners had allowed the taxpayers' appeals on the basis that the reading was done in the performance of the duties of their employment. In particular, they accepted the evidence of the deputy managing editor of the Daily Mail that the reading of the material was a necessary part of the employee's duties, and was not merely required to qualify, or maintain the qualifications of, the employee to do his work. In Scotland, the taxpayers' appeals had been dismissed by the First Division of the Inner House of the Court of Session. In England, the Crown's appeals were (with one exception) dismissed in the High Court, while in the Court of Appeal the taxpayers were successful on all the appeals. The House of Lords was therefore faced with a situation where the opposite result had been reached in the English and the Scottish appeals.
- From one point of view, this conflict need not have caused undue concern. The taxpayers in the Scottish and English cases were different, and had different employers. Their appeals had been heard by different bodies of Commissioners, who had heard different evidence. There was no equivalent in the Scottish appeals to the evidence given by the deputy managing editor of the Daily Mail in the English appeals. Each body of Commissioners had made its own findings of fact, and an appeal to the higher courts lay only on questions of law.
- This was the approach taken by Lord Browne-Wilkinson, in his dissenting speech. He pointed out that there was no dispute about the relevant principles of law, and he relied on the differing findings of fact as justifying the conclusions which the Scottish and English Commissioners had reached.
- The majority, however, unanimously upheld the decision of the lower courts in the Scottish appeals, and with varying degrees of hesitation held that the English appeals had been wrongly decided. They reached this conclusion by characterising the question as a mixed question of fact and law, and by holding that the only conclusion reasonably open to the English Commissioners was that the English journalists were not carrying out the duties of their employment when they were reading other newspapers. As Lord Templeman, delivering the leading speech, said at 316E, 66 TC 525A:
"It does not matter, therefore, whether in the present case the journalists were contractually bound to their employers to expend money in the purchase of other newspapers and magazines or whether they did so voluntarily. Whether or not a journalist thinks it is necessary to read one or more newspaper and periodical his duty is in the production of his employer's newspaper and he is not carrying out that duty when he is reading other newspapers."
Lord Templeman went on to say at 316H that the reasons for the strictness of the rule governing deductible expenses are not hard to find:
"If a journalist or other employee were allowed to deduct expenses incurred by him in his spare time in improving his usefulness to his employer, the imposition of income tax would be distorted and the amount of the expenses claimed by an individual would depend entirely on his own choice."
- I confess that my instinctive sympathy is with the approach taken by Lord Browne-Wilkinson in his dissenting speech, and I have always had some difficulty in understanding how the majority in the House of Lords felt able to divine an error of law in the decision of the English Commissioners. However, the important point for present purposes, as it seems to me, is that the majority decided the case by applying the well-established principle that expenditure is deductible only if it is incurred in the performance of the duties of the employment. That principle is not in dispute, and in my judgment it is not undermined in any way by the decision of the General Commissioners in the present case. Their decision turns on the fact that they identified Dr Banerjee's duties under her contract of employment as including attendance at the relevant courses. That may be a relatively unusual state of affairs, but it is not conceptually impossible or obviously absurd; and where that is the true state of affairs, as found by the sole tribunal of fact, I can see no error of law in the conclusion that expenditure incurred on attending the courses is deductible.
Conclusion
- For these reasons, this appeal must in my judgment be dismissed.
- I should add that it was my original intention to hand this judgment down on 20 January 2009. The long delay since then has been caused by an application by Dr Banerjee for the judgment to be anonymised, upon which I have now ruled in a separate judgment.
