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Replies to Queries -- 4 -- The perils of self employment

15 August 2001
Issue: 3820 / Categories:

Is private medical treatment following an accident at work a tax allowable expense for a self-employed person? I had assumed that it would not be, but a client's osteopath insists that it is.

If immediate treatment is an allowable expense, where does one draw the line if treatment goes on indefinitely – say for a back injury?

The textbooks quote two related tax cases, but they do not fit the straightforward situation of an accident at work.

(Query T15,859) – Tax Doctor.

Is private medical treatment following an accident at work a tax allowable expense for a self-employed person? I had assumed that it would not be, but a client's osteopath insists that it is.

If immediate treatment is an allowable expense, where does one draw the line if treatment goes on indefinitely – say for a back injury?

The textbooks quote two related tax cases, but they do not fit the straightforward situation of an accident at work.

(Query T15,859) – Tax Doctor.

 

Section 74, Taxes Act 1988 subsection 1(a) says:

'…in computing the amount of the profits to be charged under Case I or Case II of Schedule D, no sum shall be deducted in respect of

'(a) any disbursements or expenses, not being money wholly and exclusively laid out or expended for the purposes of the trade, profession or vocation; …

'(b) any disbursements or expenses of maintenance of the partners, their families or establishments or any sums expended for any other domestic or private purposes distinct from the purposes of the trade, profession or vocation.'

The two cases to which 'Tax Doctor' undoubtedly refers are Prince v Mapp 46 TC 169 and Norman v Golder 26 TC 293. In Prince v Mapp the taxpayer, who was employed as a draughtsman, but who played the guitar both as a hobby and professionally cut his finger while sharpening a pencil. The injury did not prevent him carrying on his day job but hampered his guitar playing. An operation restored movement to the finger and he claimed the cost as a Schedule D deduction. The court held that the operation was undergone not solely so that he could make money by exploiting his skill professionally, but equally to enable him to continue his hobby. There was thus duality of purpose in the expenditure. The judge however said something very helpful: 'I would mention in passing that if (the Commissioners' findings had been) that he would not have undergone it had he not wished to continue the guitar professionally the result, I think, would have been otherwise'.

Norman v Golder is far less helpful, Lord Greene, Master of the Rolls, saying that 'it is quite impossible to argue that doctors' bills represent money wholly and exclusively laid out for the purposes of the trade (or) profession'. The case of Mallalieu v Drummond [1983] STC 665 is relevant here.

The Inland Revenue Inspectors Manual mentions medical bills at paragraphs 1812 and 1825. Paragraph 1812 says that 'some actors may be able to show that extra expenditure of this nature has been incurred for professional purposes … and a proportion … may be allowed'. Paragraph 1825 says, 'the business purpose must be the sole purpose, even though there may be incidental non-business benefits'.

Where the accident happens is not really relevant. It is the purpose of the expenditure that matters. The length of time the treatment lasts is also irrelevant (though the longer it goes on, the more likely the Revenue is to challenge it). I have successfully claimed cosmetic dental work for a television presenter, and chiropractor's bills for a market gardener who fell through a glasshouse roof and who could live normally, but not lift boxes of tomatoes without therapy. The important thing is to disclose the amount claimed, the reason in the additional information box of the return, and to stress the point in paragraph 1825. – Duck(tor).

It might be a little cynical to suggest that the osteopath in question is merely seeking to protect his vested interests. However, it may well be that he tends self-employed professional sports people, whose accountants may, without the knowledge of the osteopath, allocate his fees to 'training expenses' or suchlike, without any analysis, and therefore obtain tax relief without query.

My view is that the client's occupation is crucial to the tax deductibility of the osteopath's fees. Unfortunately, the occupation is not even hinted at by the querist. Therefore, the two alternatives are as follows.

Assuming that the client's occupation is sports related or in some way dependant upon his ability to lift heavy loads, the Revenue would normally allow a deduction for short-term remedial osteopathy, providing it could be demonstrated that it was essential to enable the client to resume profitable work earlier than would have been the case with solely National Health Service treatment. This is because the courts would always consider the primary motive, which might be manoeuvrability and effectiveness, as opposed to simply the relief of pain. However, in Mallalieu v Drummond HL [1983] STC 665, the taxpayer (a female practising barrister) unsuccessfully claimed tax relief on dark clothing used for court and chambers work (in addition to her wig and gown, for which tax relief was already given). Lord Brightman explained that the object of the expenditure must be distinguished from its effect, and if a private advantage is an unavoidable effect of the expenditure incurred for business purposes, it may nevertheless be an allowable deduction. However, if the primary motive is personal, (i.e. personal decency) as in Mallalieu v Drummond, (or simply the relief of pain in the instant case) the expense must be disallowed.

If the client, however, is not in a sports related occupation or required to lift heavy loads at work, the claim will, inevitably be disallowed on grounds of duality of purpose.

In conclusion, the solution might be to claim the cost as a deduction, while making sure to identify accurately its true nature in the notes section of the client's tax return. This would overcome any later claims by the Revenue that there had been a lack of 'disclosure' at any time. Hence the client and practitioner could not be accused of dishonesty in any way, since they will have made all the facts clear each year. If the Revenue chooses to ignore the suggested explanatory notes, it cannot act retrospectively. – G.J.F.

Extracts from replies by other readers:

If after discussing the case with the client, 'Tax Doctor' still believes that a tax deduction is not permitted, it would seem best for him to ask for documentary evidence from the osteopath in support of his opinion. Preferably this should be a letter from Inland Revenue Business Profits Division confirming that it accepts that the expenditure is deductible together with the reasons why the applicable case law does not apply to the treatment in question. If the osteopath cannot provide such evidence, 'Tax Doctor' should ask his client to consider the worth of the osteopath's advice. – Hodgy

Where do the various case discussions leave 'Tax Doctor's' client? Unfortunately, not in a particularly strong position. For a claim to succeed he will need to be able to demonstrate that there is no duality of purpose in the expenditure and this is likely to prove difficult. As always with such items, if a deduction is claimed, full disclosure of the reasons for the deduction should be made in the tax return. Possible arguments in favour of a deduction may include:

* Unlike Norman v Golder (and indeed the other cases) where the illness could have arisen from work or otherwise, there is a clear causal link between the work and the illness and hence the expenditure.

* Treatment by an osteopath is not available under the National Health Service and thus the expenditure cannot be avoided.

* The client's trade is a manual one and the injury is such that he is capable of continuing with all normal activities except for work. – Wentworth

Issue: 3820 / Categories:
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