Tax Relief on Motor Expenses for Dentists: The 'Wholly and Exclusively' Challenge, Study notes of Business

Download Tax Relief on Motor Expenses for Dentists: The 'Wholly and Exclusively' Challenge and more Study notes Business in PDF only on Docsity! 15 The Dentist April 2013 FinanceWholly and exclusively Most dentists will have claimed motor expenses as a routine deduction in their tax returns over the years, but the recent tax tribunal case of Samadian v HMRC provides a salutary lesson as to the size of the hurdle that has to be overcome in getting tax relief for motor expenses. The issue of deductibility of expenses centres on the words “wholly and exclusively” and in the context of this article I would like to focus on just how difficult an obstacle these words represent in providing dentists with tax relief on their motor expenses. Background information The recent tax case of Samadian is particularly relevant. The panel also provided some very useful commentary on recent case law. Dr Samadian was a consultant geriatrician with a thriving private practice that he operated in conjunction with his full time NHS employment. As with many consultants, he saw his patients on a sessional basis at the out-patient consulting rooms at two local private hospitals. The rooms were shared with other consultants and were not for his exclusive use. No administrative support was supplied by the private hospital which was all provided at his home/office (his office which was maintained at home). All the patient records and business records were maintained at home and it was undoubtedly the case that the home/office was the centre from which he provided the administrative support for his practice as all correspondence with patients and insurers was actioned from there. Dr Samadian’s travel, and the tribunal’s decision is detailed in table 1. The point at issue Tax legislation specifically excludes a deduction in calculating a profit which is not incurred “wholly and Willie MacKenzie gives a salutary tax lesson. Willie MacKenzie is a chartered accountant and a member of NASDAL. Reader Enquiry 13 16 The Dentist April 2013 Fi na nc e VICARAGE COURT S P E C I A L I S T D E N T A L L A W Y E R S OUR SERVICES INCLUDE: Acquisition and disposal of dental and orthodontic practices (NHS/Private) Fixed fee pricing on all transactional work Incorporation of practices Preparation of partnership deeds and expense sharing agreements Drafting and preparing nursing, hygien- ists and associate agreements Advice on GDS/PDS(+) contracts Representation and assistance on disci- plinary matters with the GDC CQC registration and regulatory advice ” “ Reputation and fulfilment of promises are everything, in our business as much as in yours, so do not compromise – use the professionals. CONTACT MEL KANG OF VICARAGE COURT FOR A FREE NO OBLIGATION DISCUSSION. 6 Vicarage Road, Edgbaston Birmingham, B15 3ES T: 0121 452 4955 F: 0121 452 4956 E: mel.kang@vicaragecourt.com Vicarage Ad.indd 3 21/03/2013 12:39 exclusively” for the purposes of the trade and to establish what this means in the context of travel expenditure one has to look at case law. The decision The tribunal ruled that although Dr Samadian had a place of business at home, that did not mean that his travel expenses to and from his home were deductible for tax purposes as crucially, part of the object in making these journeys was to maintain a home which was geographically separate from the two private hospitals – it failed the “wholly and exclusively” test. Furthermore, the tribunal drew a distinction between travelling in the course of business and travelling to get to the place where the business is carried out. It disallowed travelling expenses incurred in commuting between NHS hospitals and the private hospitals. My understanding is that Dr Samadian was claiming almost 2/3rds of his motor expenses as a tax deduction whereas HMRC was offering less than 10 per cent - a significant difference. Basis of decision The test of wholly and exclusively has been reviewed extensively by the courts over the years and it is a fairly strict test in that it means just what it says: wholly and exclusively. Any expense incurred with a dual purpose in mind (and this may be a conscious or unconscious motive) will fail the statutory test. The tribunal discussed at some length the basis of the major decisions on travelling expenses over the years and homed in on two cases – Horton v Young and Mallalieu v Drummond. Although the last case did not cover travel expenses it provided very useful judicial comment as to the Reader Enquiry 14