Poor Ernie

Tax Case

Poor Ernie

Fastest milk cart or not, the High Court allowed the Revenue's appeal in Jackman v Powell.

A MILKMAN WANTED to claim his travelling expenses from his home to the depot where his float and goods were stored, on the basis that his home was the base of his operation. The High Court ruled, however, that the base of his operation was his round and the expenses were therefore not deductible.

Background

Under a franchise agreement, the milkman bought milk and other goods from the dairy, Unigate, which he then sold to his customers on his round.

He travelled every day from his home, 26 miles away, to the depot owned by the dairy. From there, he collected his milk and goods, and his float which he rented from the dairy. He paid a weekly service charge to the dairy to use the depot. The depot had no office facilities, and the taxpayer was not allowed to trade from the depot or use its address as his business address. The dairy sent invoices for the purchases of milk, etc. to the taxpayer's home, and the taxpayer issued bills to his customers from his home address.

In his 1998-99 tax return, the taxpayer claimed the expenditure incurred for travel between his home to the depot.

The Inspector refused the claim, on the ground that it was not 'wholly and exclusively' paid out in respect of the taxpayer's trade, within the meaning of section 74(1)(a), Taxes Act 1988.

The Special Commissioner allowed the taxpayer's appeal, concluding that the taxpayer's base of operation was his home.

The Revenue appealed to the High Court.

(Ingrid Simler for the Revenue; Barrie Akin for the taxpayer.)

Decision in the High Court

Mr Justice Lewison pointed out that the result of the appeal would affect around 1,000 other franchisees who had similar franchise arrangements with Unigate, and could also have implications for other self employed people.

Going through the Special Commissioner's findings, the judge said that it was inconsistent to say that the appellant carried out at home all his business activities, bar the actual delivery of goods. She had previously found that he ordered goods from Unigate at the depot, so clearly the contracts for the supply of goods were made at the depot. Furthermore, the goods were delivered to the taxpayer at the depot, and he had contact with his customers on his rounds over and above the delivery of their milk. So some business activities did in fact take place away from the taxpayer's home.

The judge homed in on Horton v Young 47 TC 60, as particularly useful to the case. Horton concerned a labour-only subcontractor, who entered into contracts with a builder, at various different sites. In this case, it was ruled that the taxpayer's travelling expenses were allowable, since he had no fixed place or places where he carried on his trade. As Lord Denning, Master of the Rolls, said in his House of Lords decision in Horton, the taxpayer went from his home to various sites 'according as his work demanded'. Mr Justice Lewison said that the phrase 'according as his work demanded', was particularly pertinent: Mr Horton's work was unpredictable. Furthermore, Mr Horton entered into subcontracts from home and he kept his tools at home.

Returning to the instant case, Mr Justice Lewison did not agree with the Special Commissioner that the base of the taxpayer's operation was also his home. The taxpayer entered into the franchise from home, but this 'seemed irrelevant'. The business he thereby acquired was the operation from the depot. Invoices for the supplies ordered by the taxpayer were sent to his home, but he placed the orders and took delivery at the depot. Another pointer away from the taxpayer's home being the base of his operation was the fact that he kept his tools at the depot, and was forbidden by the franchise from keeping his float anywhere other than the depot. While the taxpayer conducted his financial book work at home, so did many other self-employed people who carried out their business elsewhere, so this was not particularly significant.

That the taxpayer had contact with his customers on his round, and routed telephone calls to the depot, were also factors that his home was not the base of his operation.

The judge said that the Commissioner appeared to have decided that because the taxpayer's round covered some 35 specific streets, and was an area as opposed to a single place, it could not be a base of operations. This was not what Horton had decided. It was the unpredictability of where the taxpayer might be sent to work that was decisive in Horton. He concluded that the Commissioner had erred in law in deciding that the 35 roads which made up the taxpayer's round could not be his base of operation. The judge said that they 'plainly' did. Thus, the travelling expenses could not be a deductible expense.

The Revenue's appeal succeeded.

Decision for the Revenue

(Reported at [2004] STC 645.)

Commentary by Allison Plager

The decision in this case shows again how difficult it is to prove that travelling expenses are an allowable expense for a self-employed person. The outcome means that milkmen who have similar franchise arrangements, approximately 1,000 according to Mr Justice Lewison, will have to review their accounts with regard to travelling expenses claimed, since the base of their respective operations is considered to be the round.

Issue: 3974 / Categories: