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26 November 2001
Model answer
My client is a self-employed model and receives income from various shoots. One of the income sources has issued her a P60. The P60 does account for National Insurance contributions but the employers have used an 'NT' tax code and therefore no pay-as-you-earn has been paid.
Her expenses include deductions for subsistence, travel and the subscriptions to magazines. My concern is, however, regarding the expenses claimed for dentistry, clothes, make-up, hairdressing, gym membership, sunbeds and courses for TV presenting and dancing.
My client is a self-employed model and receives income from various shoots. One of the income sources has issued her a P60. The P60 does account for National Insurance contributions but the employers have used an 'NT' tax code and therefore no pay-as-you-earn has been paid.
Her expenses include deductions for subsistence, travel and the subscriptions to magazines. My concern is, however, regarding the expenses claimed for dentistry, clothes, make-up, hairdressing, gym membership, sunbeds and courses for TV presenting and dancing.
Model answer
My client is a self-employed model and receives income from various shoots. One of the income sources has issued her a P60. The P60 does account for National Insurance contributions but the employers have used an 'NT' tax code and therefore no pay-as-you-earn has been paid.
Her expenses include deductions for subsistence, travel and the subscriptions to magazines. My concern is, however, regarding the expenses claimed for dentistry, clothes, make-up, hairdressing, gym membership, sunbeds and courses for TV presenting and dancing.
I would appreciate readers' views on the deductibility or not of these expenses considering the duality aspect of almost all of the expenses mentioned.
The reason for the NT code is also a mystery, given that it was a London-based employer and all the work was carried out in London.
(Query T15,918) – Rak.
The answer to the NT coding should be simple to resolve. Form P6 would have been authorised by the Inland Revenue and, if 'Rak' needs to find out more, the tax office dealing with the employer shown on the P60 should be approached. Possibly some liaison between the main tax district and the subsidiary office took place, following the employer's direct request to the client. However, another point to be considered here is whether the maximum National Insurance contributions have already been paid and, if so, an approach to the Inland Revenue National Insurance Contributions Office (Refunds Group) for a repayment should be made. The amount sitting on the exchequer's coffers in this respect must be astronomical.
As far as the various expenditure items are concerned, 'Rak' needs to look at each photographic shoot to consider whether duality does in fact arise.
There should not be a problem with travel and subsistence. All business travel costs – rail, air and taxi – together with hotel accommodation and reasonable costs of subsistence meals should be claimed if warranted by the particular location of the shoot.
Make-up and hairdressing would be expected for modelling but, often, if engagements are under Esher Standard Contracts, models may incur few expenses in the course of their work – under Schedule D or Schedule E. The contracts usually require the employer to supply outfits, wigs, hairdressing and exceptional make-up necessary for the particular modelling project and consequently paid for by the sponsor or promoter. If, exceptionally, the model is expected to pay these costs, a claim is appropriate. Normal day-to-day cosmetic touch-ups should not be considered as allowable deductions, even though the model might be expected to be permanently displayed on a pedestal for his or her admiring public.
Clothes similarly fall within this category. A catwalk model would hardly be expected to pay for the numerous changes of costume, but if personal clothing was incidental to the actual session then no cost should be allowable (see Mallalieu v Drummond [1983] STC 665). This said, the very nature of a model's trade might mean some outrageous or even distasteful gear and have the opposite effect of wearing clothing for decency. Such items purchased and retained purely for modelling locations are considered allowable.
Courses and magazines, to keep abreast of the modelling world, are essential tools of a model's trade, whether artistic, photographic or other design. With one exception (no offence Robert), does any tax practitioner update his technical library (including Taxation magazine) for sheer fun and personal enjoyment?
Even gymnasium, sun beds and dancing costs might be wholly allowable if, for example, the particular shoot required the shedding of a few pounds to slip into the latest design, an instant tan to advertise a holiday offer or the capture of a dance routine to promote a new musical.
If these particular costs were simply year-round personal outgoings, then the business purpose is not the sole purpose; the claim fails. It follows that cosmetic dentistry work may succeed, as opposed to the cost of a six-monthly check-up and the usual filling. However, the Revenue treats surgical, hospital and medical expenses as normally inadmissible deductions in computing profits (following the decision in Norman v Golder 26 TC 293). But at the same time, Inspectors expect that extra expenditure of this nature might be incurred for professional purposes. In such cases, a proportion of the expenditure will be allowed but, in areas of difficulty or where agreement cannot be reached, the Revenue should refer to its specialist unit (Literary Artistic Profits section) for a detailed review.
As with the entertainment world generally, Inspectors are guided to look out for such expenses claims as mentioned by 'Rak'. To pre-empt any such enquiries, it is considered that careful attention to record-keeping is paramount and each shoot must be regarded on its merits. This should result in a model return. – Jim.
It must not be assumed that just because the 'employers' have deducted Class 1 National Insurance contributions that they know what they are doing!
I assume the P60 has been issued for the current tax year, as is such with some firms, working on the basis that the engagement concerned is a 'one-off'. That being so, then a letter should be sent by the client to the company concerned, along the following lines:
'Dear Sirs,
'I note that you have deducted Class 1 National Insurance contributions from the earnings you recently paid me, treating me incorrectly as an employee. I am self employed and therefore subject to Classes 2 and 4 National Insurance contributions. Would you therefore please refund to me as soon as possible the incorrectly deducted Class 1 contributions.
'Yours …'
If this does not produce the desired results, then the Inland Revenue's National Insurance Contributions Office in Newcastle should be contacted, with all the salient facts.
With the client being self employed, it is known that expenses wholly and necessarily defrayed for the purposes of the business are allowable as a deduction against the income. Of the items mentioned, and from the information given, the only query as to the deductibility is in respect of the gym membership. However, without knowing the complete background behind the case, the comments made may well be subject to some alteration. – N.K.
Extract from reply by 'Kalonymous':
It is well known that the law does not allow the self-employed deductions for expenses that are not incurred 'wholly and exclusively' for the purpose of a business. In Mallalieu v Drummond [1983] STC 665 a female barrister was not entitled to any tax relief in respect of her dark suits even though she claimed she only acquired them for her professional use. It was held by the House of Lords that her clothes served the additional purpose of decency and warmth in addition to the stated intention of prescribed court attire.
However, in practice, the Inland Revenue does allow a proportion of mixed-use expenditure to qualify for relief (see Inspector's Manual at paragraph IM601e). In respect of a television personality, I have had no problem in claiming relief for 33 per cent of expenditure on clothes and hairdressing. Each case depends on its merits and, 'Rak' should negotiate with the local Inspector a sensible proportion for each item of expenditure. However, the course fees should prove no problem and be relievable in full.
Editorial note. Following the Sam West and Alec McCowen Special Commissioners' cases, attempts by the (then) Department of Social Security to recover employee National Insurance contributions from 'entertainers' collapsed. Models are not entertainers, and even if engaged under an agency contract are exempt from the National Insurance Contributions agency rules by paragraph 2(b), Regulation 2, Part 1 of Schedule 1 of the Contributions Regulations (as amended). As 'N.K.' points out, it would seem that the so-called 'employer' is at fault. This case may illustrate the nervousness which most employers currently have due to the current confusion regarding status for tax and employment law purposes, coupled with reports of occasional aggressive recategorisation activity by the Revenue; for example there was at one stage an edict that freelance contributors to newspapers had to be treated as employees.
My client is a self-employed model and receives income from various shoots. One of the income sources has issued her a P60. The P60 does account for National Insurance contributions but the employers have used an 'NT' tax code and therefore no pay-as-you-earn has been paid.
Her expenses include deductions for subsistence, travel and the subscriptions to magazines. My concern is, however, regarding the expenses claimed for dentistry, clothes, make-up, hairdressing, gym membership, sunbeds and courses for TV presenting and dancing.
I would appreciate readers' views on the deductibility or not of these expenses considering the duality aspect of almost all of the expenses mentioned.
The reason for the NT code is also a mystery, given that it was a London-based employer and all the work was carried out in London.
(Query T15,918) – Rak.
The answer to the NT coding should be simple to resolve. Form P6 would have been authorised by the Inland Revenue and, if 'Rak' needs to find out more, the tax office dealing with the employer shown on the P60 should be approached. Possibly some liaison between the main tax district and the subsidiary office took place, following the employer's direct request to the client. However, another point to be considered here is whether the maximum National Insurance contributions have already been paid and, if so, an approach to the Inland Revenue National Insurance Contributions Office (Refunds Group) for a repayment should be made. The amount sitting on the exchequer's coffers in this respect must be astronomical.
As far as the various expenditure items are concerned, 'Rak' needs to look at each photographic shoot to consider whether duality does in fact arise.
There should not be a problem with travel and subsistence. All business travel costs – rail, air and taxi – together with hotel accommodation and reasonable costs of subsistence meals should be claimed if warranted by the particular location of the shoot.
Make-up and hairdressing would be expected for modelling but, often, if engagements are under Esher Standard Contracts, models may incur few expenses in the course of their work – under Schedule D or Schedule E. The contracts usually require the employer to supply outfits, wigs, hairdressing and exceptional make-up necessary for the particular modelling project and consequently paid for by the sponsor or promoter. If, exceptionally, the model is expected to pay these costs, a claim is appropriate. Normal day-to-day cosmetic touch-ups should not be considered as allowable deductions, even though the model might be expected to be permanently displayed on a pedestal for his or her admiring public.
Clothes similarly fall within this category. A catwalk model would hardly be expected to pay for the numerous changes of costume, but if personal clothing was incidental to the actual session then no cost should be allowable (see Mallalieu v Drummond [1983] STC 665). This said, the very nature of a model's trade might mean some outrageous or even distasteful gear and have the opposite effect of wearing clothing for decency. Such items purchased and retained purely for modelling locations are considered allowable.
Courses and magazines, to keep abreast of the modelling world, are essential tools of a model's trade, whether artistic, photographic or other design. With one exception (no offence Robert), does any tax practitioner update his technical library (including Taxation magazine) for sheer fun and personal enjoyment?
Even gymnasium, sun beds and dancing costs might be wholly allowable if, for example, the particular shoot required the shedding of a few pounds to slip into the latest design, an instant tan to advertise a holiday offer or the capture of a dance routine to promote a new musical.
If these particular costs were simply year-round personal outgoings, then the business purpose is not the sole purpose; the claim fails. It follows that cosmetic dentistry work may succeed, as opposed to the cost of a six-monthly check-up and the usual filling. However, the Revenue treats surgical, hospital and medical expenses as normally inadmissible deductions in computing profits (following the decision in Norman v Golder 26 TC 293). But at the same time, Inspectors expect that extra expenditure of this nature might be incurred for professional purposes. In such cases, a proportion of the expenditure will be allowed but, in areas of difficulty or where agreement cannot be reached, the Revenue should refer to its specialist unit (Literary Artistic Profits section) for a detailed review.
As with the entertainment world generally, Inspectors are guided to look out for such expenses claims as mentioned by 'Rak'. To pre-empt any such enquiries, it is considered that careful attention to record-keeping is paramount and each shoot must be regarded on its merits. This should result in a model return. – Jim.
It must not be assumed that just because the 'employers' have deducted Class 1 National Insurance contributions that they know what they are doing!
I assume the P60 has been issued for the current tax year, as is such with some firms, working on the basis that the engagement concerned is a 'one-off'. That being so, then a letter should be sent by the client to the company concerned, along the following lines:
'Dear Sirs,
'I note that you have deducted Class 1 National Insurance contributions from the earnings you recently paid me, treating me incorrectly as an employee. I am self employed and therefore subject to Classes 2 and 4 National Insurance contributions. Would you therefore please refund to me as soon as possible the incorrectly deducted Class 1 contributions.
'Yours …'
If this does not produce the desired results, then the Inland Revenue's National Insurance Contributions Office in Newcastle should be contacted, with all the salient facts.
With the client being self employed, it is known that expenses wholly and necessarily defrayed for the purposes of the business are allowable as a deduction against the income. Of the items mentioned, and from the information given, the only query as to the deductibility is in respect of the gym membership. However, without knowing the complete background behind the case, the comments made may well be subject to some alteration. – N.K.
Extract from reply by 'Kalonymous':
It is well known that the law does not allow the self-employed deductions for expenses that are not incurred 'wholly and exclusively' for the purpose of a business. In Mallalieu v Drummond [1983] STC 665 a female barrister was not entitled to any tax relief in respect of her dark suits even though she claimed she only acquired them for her professional use. It was held by the House of Lords that her clothes served the additional purpose of decency and warmth in addition to the stated intention of prescribed court attire.
However, in practice, the Inland Revenue does allow a proportion of mixed-use expenditure to qualify for relief (see Inspector's Manual at paragraph IM601e). In respect of a television personality, I have had no problem in claiming relief for 33 per cent of expenditure on clothes and hairdressing. Each case depends on its merits and, 'Rak' should negotiate with the local Inspector a sensible proportion for each item of expenditure. However, the course fees should prove no problem and be relievable in full.
Editorial note. Following the Sam West and Alec McCowen Special Commissioners' cases, attempts by the (then) Department of Social Security to recover employee National Insurance contributions from 'entertainers' collapsed. Models are not entertainers, and even if engaged under an agency contract are exempt from the National Insurance Contributions agency rules by paragraph 2(b), Regulation 2, Part 1 of Schedule 1 of the Contributions Regulations (as amended). As 'N.K.' points out, it would seem that the so-called 'employer' is at fault. This case may illustrate the nervousness which most employers currently have due to the current confusion regarding status for tax and employment law purposes, coupled with reports of occasional aggressive recategorisation activity by the Revenue; for example there was at one stage an edict that freelance contributors to newspapers had to be treated as employees.
