Sargent (Inspector of Taxes) v Barnes

[1978] 2 All ER 737

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(Judgment by: Oliver J)

Between: Sargent (Inspector of Taxes)
And: Barnes

Court:

Judge:
Oliver J

Subject References:
Income tax
Deduction in computing profits
Travelling expenses
Travel between home and place of work
Dental surgeon maintaining a laboratory to repair, alter and manufacture dentures
Laboratory between taxpayer's home and surgery
Taxpayer calling at his laboratory on his journey to and from his home to the surgery
Whether expense of travelling between laboratory and surgery wholly and exclusively laid out for purpose of taxpayer's practice

Legislative References:
Income and Corporation Taxes Act 1970 - s 130(a)

Case References:
Bentleys, Stokes & Lowless v Beeson (Inspector of Taxes) - [1952] 2 All ER 82; 33 Tax Cas 491; 31 ATC 229; [1952] TR 239; 45 R & IT 461, CA; 28(1) Digest (Reissue) 150, 465
Bowden (Inspector of Taxes) v Russell and Russell - [1965] 2 All ER 258; [1965] 1 WLR 711; 42 Tax Cas 301; 44 ATC 74; [1965] TR 89; 28(1) Digest (Reissue) 244, 761
Horton (Inspector of Taxes) v Young - [1971] 3 All ER 412; [1972] Ch 157; [1971] 3 WLR 348; 47 Tax Cas 60; 50 ATC 207; [1971] TR 181, CA; affg; [1971] 2 All ER 351; [1972] Ch 157; [1971] 2 WLR 236; 47 Tax Cas 60; Digest (Cont Vol D) 467, 1264
Newsom v Robertson (Inspector of Taxes) - [1952] 2 All ER 728; [1953] Ch 7; 33 Tax Cas 452; 31 ATC 429; [1952] TR 401; 45 R & IT 679, CA; 28(1) Digest (Reissue) 244, 760
Caillebotte (Inspector of Taxes) v Quinn - [1975] 2 All ER 412; [1975] 1 WLR 731; [1975] STC 265; 50 Tax Cas 222
Edwards (Inspector of Taxes) v Bairstow - [1955] 3 All ER 48; [1956] AC 14; 36 Tax Cas 207, HL
Hillyer v Leeks (Inspector of Taxes) - [1976] STC 490
Pools (Inspector of Taxes) v Owen - [1969] 2 All ER 1; [1970] AC 244; 45 Tax Cas 571, HL

Hearing date: 1 March 1978
Judgment date: 2 March 1978

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Judgment by:
Oliver J

This is the Crown's appeal from the Commissioners for the General Purposes of the Income Tax for the Division of Northleach, Gloucestershire, who, on 10 September 1975, allowed the appeal of the taxpayer against three assessments for the years 1972-73, 1973-74 and 1974-75.

The taxpayer is a dentist living at Badgeworth, about two miles south-west of the city of Cheltenham, and having his surgery at Winchcombe, some five or six miles to the north-east of that city. The point at issue is whether, in computing the profits of his trade the purposes of Sch D income tax, the taxpayer is entitled to deduct certain travelling expenses (the amount of which is not in dispute), being the cost attributable to travel between a dental laboratory maintained by the taxpayer close to his home in Badgeworth and the taxpayer's surgery, a distance of ten to 11 miles.

The facts found by the commissioners were that the taxpayer at all material times maintained a dental laboratory in an outbuilding in the curtilage of his father's private house at The Reddings, Cheltenham. That is approximately one mile from the taxpayer's own residence, and a map which has, by agreement, been put before me shows that it lies almost directly to the north. Badgeworth lies between two main roads, each leading into Cheltenham, and there is no finding by the commissioners as to which constitutes the most convenient route to the surgery. There appears, however, purely as a matter of distance, to be no significant difference between the northern route (which runs immediately to the south of The Reddings) and the southern route. The arrangement between the taxpayer and his father is that he pays no rent, but he contributes to the cost of electricity and discharges the whole cost of the gas used in the outbuilding.

At this laboratory, a self-employed, part-time dental technician (working exclusively for the taxpayer) carries out work for the taxpayer at a set rate per job. The taxpayer practises on his own, and if he did not have available locally the services of a technician it would be necessary for him to have work carried out through a postal service run by a commercial laboratory. It is not in dispute that the laboratory is a proper adjunct of the practice, or that the work done there is exclusively referable to the practice.

The important findings as regards the journeys, the expenses of which are claimed as deductions, are these:

'Each morning on his way to his surgery, the [taxpayer] spent about ten minutes at the laboratory in order to collect completed work, and, as necessary, to discuss matters with his technician ... Each evening after closing his surgery in Winchcombe, the [taxpayer] called at his laboratory in Cheltenham in order to deliver dentures and other articles which he had received during the day and during the course of his evening visits to his laboratory, he sometimes spent 30 minutes to one hour advising on or working on dentures before proceeding on his journey homewards ... The [taxpayer] visited patients on his way from the surgery to the laboratory about twice a week ... On about a dozen occasions in a year, the [taxpayer] had to travel from his surgery to his laboratory and back during working hours.'

The case sets out the taxpayer's contention in these terms:

'The [taxpayer] contended that to carry out his profession properly, it was essential for him to visit his laboratory every morning before going to his surgery, and each evening on his way home and that his work commenced each day when he arrived at the laboratory and that the journey from the laboratory to the surgery each day was wholly and exclusively for the purposes of his profession.'

The commissioners' conclusions on those findings were as follows:

'Having considered the facts and heard the argument on each side and giving the matter very careful consideration, we came to the conclusion that it is absolutely necessary for the [taxpayer] to travel back and forth from his laboratory in Cheltenham in order to enable him to carry on his profession as a dentist and accordingly, we decided that the expenditure in respect of the travelling expenses as claimed, namely £160, is an allowable expenditure.'

From that conclusion the Crown now appeal.

Counsel for the Crown's first submission is that the commissioners' conclusion is wrong in law because it propounds a wholly wrong test for whether expenditure is deductible for the purposes of Sch D income tax. The matter is regulated by s 130 of the Income and Corporation Taxes Act 1970 which, so far as relevant, is in these terms:

'Subject to the provisions of the Tax Acts, in computing the amount of the profits or gains 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 parties, 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 ....'

In asking themselves, therefore, whether it was necessary for the taxpayer to travel back and forth, the commissioners were, quite simply, asking themselves the wrong question, because the fact that expenditure is necessary is no guide to whether it is exclusively incurred for the purposes of a trade. Thus, expenditure which can be shown to be exclusively laid out for the purposes of the trade is not disqualified for deduction because it is not strictly necessary to incur it in order to carry on the trade: see Bentleys, Stokes & Lowless v Beeson (Inspector of Taxes) . Equally, it was no doubt necessary for the taxpayer in Newsom v Robertson (Inspector of Taxes) to incur expenditure in travelling between his home and his chambers, because without doing so he could not have carried on his practice; but that did not render the cost of his journey deductible as an expense incurred exclusively for the purposes of his profession.

Counsel for the taxpayer suggests that, in applying the test which they did, the commissioners were in fact applying the more stringent test applicable to allowances for Sch E tax, where it has to be shown that the expenditure is not only incurred exclusively in the performance of the duties of the office or employment in question but that it is necessary for the carrying out of those duties. Their decision, therefore, he submits, embraced, sub silentio, the notion that the expenditure in the instant case was referable wholly and exclusively to the taxpayer's practice as a dentist. But the commissioners do not so state, and I do not find myself able to read into their decision something which is not there, either expressly or by necessary implication. So the question with which I am confronted is: on the facts as found by the commissioners, were they bound to find either that the expenditure was exclusively incurred for the purposes of the taxpayer's trade or business, or that it clearly was not; or is this, as a third possibility, a case which I ought to remit to the commissioners for further findings?

Now it is clearly established by Newsom v Robertson , an authority binding on me, that the costs of a professional man's journeys between his home and his place of work are not, or are not necessarily, costs incurred exclusively for the purposes of his profession, even if he choses to do part of his professional work at his home. To quote from the judgment of Romer LJ in that case ([1952] 2 All ER 728 at 732, [1953] Ch 7 at 17, 33 Tax Cas 452 at 465), 'the object of the journeys, both morning and evening, is not to enable a man to do his work, but to live away from it,

The question in this case arises in relation to journeys from and to a point intermediate between the principal place of work and the taxpayer's home, because, although, no doubt, visits to the laboratory involve some relatively insignificant deviation from the direct route between home and surgery, effectively I have to deal with a straight line from residence via laboratory, and vice versa.

Counsel for the taxpayer submits that the true analysis is that, on the commissioners' findings, the taxpayer had two places at which he carried on his professional practice, the laboratory and the surgery. His working day, as counsel for the taxpayer puts it, commenced when he arrived at the laboratory and terminated when he started on the last mile of his journey home in the evening. He points out that, in Newsom v Robertson ([1952] 2 All ER 728 at 731, [1953] Ch 7 at 16, 33 Tax Cas 452 at 464), Denning LJ postulated this test: 'In order to decide into which category to put the cost of travelling, you must look to see what is the base from which the trade, profession, or occupation is carried on.' And in the same case Romer LJ postulated this question ([1952] 2 All ER 728 at 732, [1953] Ch 7 at 18, 33 Tax Cas 452 at 465):

'Is the position altered, then, by the fact, as found by the commissioners, that Mr Newsom worked in his house at Whipsnade as well as in his chambers in Lincoln's Inn? I am clearly of opinion that it is not. It seems to me impossible to say that this element assimilates the case to that of a man who possesses two separate places of business, and, for the furtherance and in the course of his business activities, has to travel from one to another.'

Here, counsel submits, the taxpayer had two bases of operations, and the expenses claimed are expenses of travelling between them for the purposes of his business. It is not in dispute that if, having reached his surgery, the taxpayer found it necessary to visit the laboratory during the day to pick up dentures urgently required for a patient, the expenses of that journey would be a deductible expense. Why, therefore, should it make any logical difference that the journey happens to be a limb of the journey to or from the taxpayer's private house? This is clearly not the case of the itinerant trader (a bricklayer in that case) envisaged by Brightman J in Horton (Inspector of Taxes) v Young ; but the Court of Appeal in that case based their decision on the fact that the expenses there claimed as deductions were expenses incurred in travelling between what was described variously as 'the locus in quo of the trade', 'the business base' or 'the centre of activities' and the various sites where the taxpayer carried out his actual bricklaying activities. The only difference, counsel for the taxpayer suggests, between that case and the instant case is that here, instead of there being one base of operations and a number of sites of business activity which vary from time to time, we have two fixed bases of operation between which the taxpayer travels for the purpose of his business. Once it is established, he suggests, that the laboratory is a place where the taxpayer performs acts exclusively referable to his profession as a dentist, then the cost of travelling from that place of business activity to the surgery is allowable.

Now the assumption here is that the expense of travel between two places of business is always and inevitably allowable, and counsel for the taxpayer bases himself on this passage in the judgment of Lord Denning MR in Horton v Young ([1971] 3 All ER 412 at 415, [1972] Ch 157 at 168, 47 Tax Cas 60 at 71):

'If the commissioners were right it would lead to some absurd results. Suppose that Mr Horton had a job at a site 200 yards away from his home, and another one at Reigate, 45 miles away. All he would have to do would be to go for five minutes to the site near home and then he would get his travelling expenses to and from Reigate. I can well see that he could so arrange his affairs that every morning he would have to call at a site near home. Instead of going to that absurdity, it is better to hold that his expenses to and from his home are all deductible.'

I question, however, whether, in that passage, Lord Denning MR intended to suggest that by deliberately planning your journey to your place of work so as to incorporate a deviation through another place of work where you actually have no business to do you alter the quality of the journey.

The statute here lays down a test in express terms, and although analogies and examples may be useful guides the propounding of general propositions which involve the use of analogous, but not precisely equivalent, terms can lead to confusion. In the ultimate analysis, the court has simply to look at the facts of the case before it and apply to those facts the statutory formula. As Stamp LJ said in Horton v Young ([1971] 3 All ER 412 at 416, [1972] Ch 157 at 169, 47 Tax Cas 60 at 72):

'The facts of such cases are infinitely variable, and one must, in my judgment, look at the facts of each case and decide whether the expenses are money wholly and exclusively laid out or expended for the purpose of the trade or the profession.'

That may seem almost a truism, but it is, I think, a useful reminder that there is a particular statutory formula and that it has to be applied according to its terms.

On the facts as they have been found, could the commissioners here properly have found what in fact they did not: that the expenses incurred, although necessary for the taxpayer's practice, were exclusively incurred for the purposes of that practice? Or were they incurred, either in whole or at least in part, in order to enable the taxpayer to live away from his work?

I do not think, to begin with, that counsel for the taxpayer's suggested test of where the day's work began can be right. A barrister's day's work may begin in the early morning when he gets up very early to read papers for an urgent conference, or when he prepares a case on the train journey to London. But that does not enable him to claim his railway ticket as a deductible expense. Nor, indeed, is this submission supported by the commissioners' findings, for there is a clear implication from the last finding that on occasions the taxpayer travelled to and from the laboratory 'during working hours', that the journeys in respect of which the relevant expenses are claimed were not 'during working hours.

So I ask myself: what was the real purpose of the taxpayer's journeys? The commissioners' findings were

(a)

that he called at the laboratory each morning 'on his way to the surgery' and spent about ten minutes 'in order to collect completed work, and, as necessary, to discuss matters with his technician'; and

(b)

that each evening 'after closing his surgery in Winchcombe' he called in order to deliver dentures, sometimes stopping to advise or do some work 'before proceeding on his journey homewards'. Indeed, his own submission in the stated case is that it was essential for him to visit the laboratory each evening 'on his way home'.

Looking at the matter realistically in the light of these findings, what the taxpayer was doing, in my judgment, was calling to deliver and pick up work on his way to and from the surgery where the practice was carried on.

Counsel for the taxpayer relies strongly on the passage in the judgment of Somervell LJ in Newsom v Robertson ([1952] 2 All ER 728 at 730, [1953] Ch 7 at 13, 14, 33 Tax Cas 452 at 462) where he postulates the case of a solicitor with two offices and says this:

'Many examples were given in the course of the argument, but the following would be I think, a fair example of the type of case to which counsel for the taxpayer would assimilate the present. A professional man, say a solicitor, has two places of business, one at Reading and one in London. He normally sees clients and does his professional work at Reading up till noon and then comes to London. He may live at Reading or in London or at neither. I would have agreed with counsel for the taxpayer that the journeys to and fro between Reading and London were deductible within the rule. He is carrying on one profession partly in London and partly at Reading.'

From this, counsel for the taxpayer argues that the mere fact that there is an incidental advantage conferred by the making of what, if I may use a shorthand expression, I will call 'a business journey' (in that it shortens the distance over which the propositus has to travel to arrive at his home) does not convert a business journey into a homeward journey. In this context, he relies on this passage from the judgment of Romer LJ in Bentleys, Stokes & Lowless v Beeson ([1952] 2 All ER 82 at 85, 33 Tax Cas 491 at 504):

'It is, as we have said, a question of fact. And it is quite clear that the purpose must be the sole purpose. The paragraph says so in clear terms. If the activity be undertaken with the object of promoting business and also with some other purpose, for example, with the object of indulging an independent wish of entertaining a friend or stranger or of supporting a charitable or benevolent object, then the paragraph is not satisfied though in the mind of the actor the business motive may predominate. For the statute so prescribes. Per contra, if, in truth, the sole object is business promotion, the expenditure is not disqualified because the nature of the activity necessarily involves some other result, or the attainment or furtherance of some other objective, since the latter result or objective is necessarily inherent in the act.'

I do not think, however, that the findings in the present case can justify the assertion that, looked at realistically, there was here really a profession being carried on in two places so as to make the case analogous to that propounded by Somervell LJ. The taxpayer had made arrangements at somebody else's premises for a dental mechanic to carry out what was, no doubt, an essential function for his practice. If he had made those arrangements in an outbuilding in the curtilage of his own house, it would not, in my judgment, mean that he was carrying on a dental practice from his home, so as to justify an assertion that the expenses of travel from his home to his surgery were exclusively for the purposes of his practice. Nor, equally, if he had made arrangements with a dental technician living en route between home and surgery that he would drop off and pick up dentures on his journeys in and out, for the technician to work on at his own premises, could this, in my judgment, render his expenses of travelling between the technician's house or workshop and his surgery an expense incurred exclusively for the purposes of his profession, any more than could, for instance, a daily stop en route at a post office for the purpose of posting dentures to a commercial laboratory convert an essentially domestic journey into a business journey.

This is an area in which it is difficult and, I think, positively dangerous to seek to lay down any general proposition designed to serve as a touchstone for all cases. The statute, by its very terms, directs the court to look at the purpose for which the expense was incurred in an individual case, and that necessarily involves a consideration of the intention governing or the reason behind a particular expenditure, which must depend in every case on its own individual facts. The stone which kills two birds may be aimed at one and kill another as a fortuitous or fortunate consequence; or it may be aimed at both. But it is only in the former case that the statute permits the taxpayer to deduct its cost.

In seeking to assess, on the facts as found by the commissioners, the taxpayer's purpose in incurring the expenditure here in question, counsel for the taxpayer points to the fact that he paused in his progress to the surgery to discuss matters with the technician and that he sometimes spent up to an hour with him in the evening, even carrying out work on dentures himself. But the interruption of a journey, whether for five minutes or for a longer period, does not alter the quality of the journey, although it may add to its utility. At highest, as it seems to me, it merely furnishes an additional purpose.

Of course, it is right to say that if I notionally interrupt the taxpayer's journey at an intermediate point between the laboratory and the surgery and ask myself the question 'Why is he on this particular road at this particular time?' I may come up with the answer that he is taking that particular route because it passes the laboratory. But, as counsel for the Crown points out, that is not the right question. What the court is concerned with is not simply why he took a particular route (although that may be of the highest relevance in considering the deductibility of any additional expense caused by a deviation) but why the taxpayer incurred the expense of the petrol, oil, and wear and tear and depreciation in relation to this particular journey.

In my judgment, the facts found in the stated case leave no room for doubt that the answer to that question must be that it was incurred, if not exclusively then at least in part, for the purpose of enabling the taxpayer to get from his private residence to the surgery where his profession was carried on. The fact that it served the purpose also of enabling him to stop at an intermediate point to carry out there an activity exclusively referable to the business cannot, as I think, convert a dual purpose into a single purpose.

In Bowden (Inspector of Taxes) v Russell and Russell ([1965] 2 All ER 258 at 263, [1965] 1 WLR 711 at 716, 717, 42 Tax Cas 301 at 306), Pennycuick J quoted the passage from the judgment of Romer LJ in Bentleys, Stokes & Lowless v Beeson ([1952] 2 All ER 82 at 85, 33 Tax Cas 491 at 504) which I have already read, where Romer LJ considered what is now s 130 of the 1970 Act, and then went on as follows ([1965] 2 All ER 258 at 263, [1965] 1 WLR 711 at 717, 42 Tax Cas 301 at 306):

'Then ROMER, L.J., gives a number of examples. As appears from that judgment, it may often be difficult to determine whether the person incurring the expense has in mind two distinct purposes or a single purpose which will or may produce some secondary consequence; but, once it is found that the person has a distinct purpose other than that of enabling him to carry on and earn profits in his trade or profession, s 137(a) prohibits deduction of the expense.'

In the instant case, on the facts found it would in my judgment be a travesty to say that the taxpayer was in any relevant sense carrying on his practice as a dentist at The Reddings. He had established a facility at The Reddings, and he was merely utilising his journey between his residence and the base of operations where the practice was carried on to avail himself of this facility; that is to say, to visit this intermediate point, where he had arranged for an independent contractor to carry out an activity, no doubt a necessary activity, referable to the practice. But the journey did not thus assume a different purpose once the intermediate point was passed, or cease to be a journey for the purpose of getting to or from the place where the taxpayer chose to live. I do not therefore think that, however necessary to the practice the activity pursued at The Reddings may have been, the commissioners could properly have arrived at the conclusion that the expenses claimed were incurred wholly or exclusively for the purposes of the practice; and the appeal therefore succeeds.

Appeal allowed.