Expenses claims: When memory fails to serve
By Justine Riccomini, Head of Taxation (Scottish Taxes, Employment and ICAS Tax Community)
2 July 2021
Justine Riccomini explains how an employment expenses claim spanning three years with no supporting records ended up at the Tribunal.
Background
In 2017, Mr Storey submitted Self-Assessment returns for three tax years (not subject to a notice of assessment) – 2014/15, 2015/16 and 2016/17 which contained claims in relation to his employment as a scaffolder for expenses, totalling almost £32,000.
In June 2018, HMRC opened Section 9A TMA 1970 enquiries into each of the three returns, specifically asking for evidence in support of the claims. Letters were sent to both the taxpayer and the agent.
What’s the Storey?
Having received no response, HMRC wrote to the taxpayer and the agent again, stating that they would be removing the claims from the tax returns, and inserting some benefits in kind which had been omitted, which they were aware of from their receipt of forms P11D from Mr Storey’s employer for the year 2015/16. These included car benefit of £555 and fuel benefit of £470.
HMRC then received a schedule from the agent which set out car mileage, clothing and tools expenses for the taxpayer. Mr Storey was driving his own car, a Vauxhall Insignia, on business during his employment, as well as incurring expenses on specialist scaffolder’s clothing and tools/equipment.
After further enquiries by HMRC as to evidentiary support, the agent informed HMRC that there were no mileage or other records and that the mileage claims, claimed using the Approved Mileage Allowance Payments (AMAPs) rates (for private car drivers driving their own cars on business) and other expenses had been assembled to the best of Mr Storey’s memory, adding that a company van had also been used at some point during the period of the claim. (AMAPs payments cannot be used for company cars or vans).
Memory lapse
HMRC’s inquiry revealed that Mr Storey’s memory may have been playing tricks on him when the mileage claims showing that over 60,000 miles travelled in the car throughout the period in question were not corroborated by the MOT readings, which logged 38,343 miles travelled in total.
In addition, almost £2,000 had been claimed for food expenses per annum, as well as flat-rate allowances and accounting fees to the tune of £650 for all years. None of the expenses could be accounted for and it was not even clear whether any of the travel referred to was business-related due to the lack of information from both the employer and the employee and his agent.
Assessments, repayments and appeals
Over the course of 2017 and 2018, HMRC issued assessments totalling £15,000 and wrongly issued a repayment totalling £13,000, which would need to be repaid. Penalties were mitigated by 80% and totalled £2,300.
After asking for a review which was carried out and upheld by HMRC, the taxpayer then appealed to the Tribunal in April 2019, of the view that although he had not kept proper records, his expenses were nevertheless correct and justifiable and he disputed the reduction being made to the claim.
The task
The Tribunal was asked to consider:
(1) was the mileage claimed capable of being classified as business mileage – i.e. incurred in the performance of Mr Storey’s duties;
(2) did the mileage expenses qualify for a deduction under S. 231 ITEPA 2003;
(3) were the expenses eligible for relief under S. 336 ITEPA 2003 – i.e. were they “wholly, exclusively and necessarily” incurred in the proper performance of Mr Storey’s duties;
(4) was a Sch. 24 FA 2007 penalty applicable.
Decision time
Unsurprisingly, the tribunal was unable to uphold the claims made by the taxpayer in (1) (2) and (3) above due to the “dearth” of records and substantiation of any kind that the expenses had even been incurred. As to (4), however, the Tribunal concluded that due to the lack of suitable and appropriate guidance for employees to follow (or anyone who may need to make a self-assessment return in the absence of payments by their employer with no tax knowledge), the penalty should be suspended provided the tax liability was repaid immediately.
The last word
The Tribunal found it necessary to comment on the lack of available guidance to assist people in Mr Storey’s position as follows: “Having made the above findings, we pause to air our concern that HMRC should urgently publish detailed guidance to assist and cater for employees who find themselves falling a lacuna of having submit to expenses by way of self-assessment returns where there has been no consideration of the same by their employer etc. in calculating an employee’s tax liability. It is not hard to envisage that there may be many tradesmen who incur expenses who might benefit from guidance as to how to keep records and the types of evidence they ought to submit, as well as educating these individuals as to the obligations that fall upon their employers so that they are made aware of not merely their obligations to the Respondent but their rights as well.”
Conclusion
This is one of those cases that should never have ended up at Tribunal – but the comments made by the Tribunal Judge regarding the lack of suitable guidance for unrepresented taxpayers is a valid one and it is hoped that in the ongoing reform of the Tax Administration Framework, these comments will be heeded by HMRC.