A doctor has been told to pay tax on the majority of an expenses claim after a First Tier Tribunal (FTT) appeal
The tribunal part allowed an appeal related to the deductibility of employment expenses which HMRC rejected, however only £499 of the expenses were deemed to be eligible for tax relief.
In his self assessment tax return for 2016-17, Dr Harry Nduka included employment income of £48,500, tax deducted via PAYE from those earnings of £10,500 and expenses of £43,500.
Most of the claimed expenses were legal fees relating to Nduka’s dispute with the General Medical Council (GMC), but he also claimed travel and accommodation costs, private dental treatment, training and costs of a computer.
The PAYE information filed by his employers showed that Nduka’s 2016-17 earnings were £40,295.70, from which tax of £6,356.44 had been deducted.
HMRC opened an enquiry into Nduka’s tax return, asking for an explanation of the income, the tax paid, the expenses and other costs.
On 19 July 2018, HMRC closed the enquiry and amended Nduka’s tax return to reduce the income and the tax, and remove the employment deductions.
Nduka appealed to the tribunal on the basis that the expenses and costs he had claimed were allowable.
HMRC accepted that a professional subscription of £499 was allowable. However, it found that none of the other sums claimed were eligible.
The other amounts included fees for the Royal College of Obstetricians and Gynaecologists of £180 and dental costs of £2,000, but these amounts were listed as £499 and £3,000 in later lists, respectively.
In 2018, the appellant informed HMRC that he had spent £17,000 on legal fees in the 2016-17 tax year, related to a dispute with the General Medical Council (GMC) into an investigation into dishonest conduct.
However, in the two 2022 lists, the figure had increased to over £27,000. His 2016-17 return was issued shortly after 6 April 2017 and filed by him around two weeks later, on 25 April 2017.
It stated that his employment earnings for the tax year were £48,500 and that expenses of £43,500 were allowable to reduce that figure.
On 1 November 2017, Ms Harewood, an HMRC compliance officer, opened an enquiry into Nduka’s returns. HMRC twice tried to meet him but received no response.
The tax authority closed the enquiry on 19 July 2018, reducing his employment income and removing all the employment expenses.
During the first hearing, Dr Nduka said HMRC had opened an earlier enquiry into the 2016-17 tax year, and that the enquiry opened on 1 November 2017 was therefore invalid.
The FTT referred to the Income Tax Act 2003 (ITEPA) which sets out in s336(1) the ‘general rule’ concerning the expenses of employment.
It states that ‘the general rule is that a deduction from earnings is allowed for an amount if the employee is obliged to incur and pay it as holder of the employment, and the amount is incurred wholly, exclusively and necessarily in the performance of the duties of his employment’.
In the context of Nduka’s appeal, he submitted that his legal expenses were allowable because they ‘related to his profession as a doctor’ and unless he succeeded in defending his position, he ‘couldn’t continue’ in his job.
HMRC submitted that these costs did not meet the requirements in s336(1) because they were personal to Nduka and not a ‘necessary cost’ which would be incurred by every employee working as an obstetrics and gynaecology registrar.
In addition, the legal costs were incurred to put Nduka in a position to continue to carry out his work as a registrar, they were not incurred in the performance of his duties.
Related to his other expenses, which included accommodation, dental costs, and training, the tribunal found that no deductions could be allowed from Nduka’s employment earnings.
However, the FTT allowed his claim for the £499 fees paid to the Royal College of Obstetricians and Gynaecologists.
Judge Anne Redston said: ‘Dr Nduka’s appeal is allowed in part. His employment income is reduced by the subscription to the RCOG but for no other expenses or costs. HMRC are to recalculate Dr Nduka’s tax liability for 2016-17 on the basis that his employment income is reduced by £499.’