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There is probably no single definition of a famous tax case. However, two criteria are likely to figure: either the facts or issues are well known, or the names of the parties easily trip off the tongue even though the facts or issues are not so memorable.
Every few years or so, a tax case meets both of these criteria. This article concerns one such case, Mallalieu v Drummond 57 TC 330, now more than two decades old.
Ann Mallalieu was (and is) a practising barrister. In accordance with guidelines issued by the Bar Council, Miss Mallalieu (as she then was) was required, when appearing in court, to wear clothes which satisfied the following requirements:
- The dress of barristers appearing in court should be unobtrusive and compatible with the wearing of robes.
- Suits and dresses should be of dark colour. Dresses or blouses should be long-sleeved and high to the neck; shirts and blouses should be predominantly white or of other unemphatic appearance; collars should be white and shoes black.
Miss Mallalieu consequently purchased ‘work clothes’ that were in accordance with these guidelines. When her case was first heard by the General Commissioners, the following facts, inter alia , were confirmed:
- Miss Mallalieu would not have purchased any of the disputed items, had it not been for the requirement of her profession that she should be so clothed.
- She bought this clothing only because she would not have been permitted to appear in court otherwise.
In the course of one tax year, Miss Mallalieu spent in excess of £500 (in real terms now more than £2,000) on the replacement, cleaning and laundry of such clothes. She claimed a deduction for this amount as a revenue item. While the replacement cost of a new suit is strictly a capital item, the Inland Revenue operates a concessionary scheme known as the ‘renewals basis’. The renewals basis allows a Schedule D trader (and those carrying on Case II professions or vocations) to claim a revenue deduction for the cost of replacing or repairing plant or machinery. The main drawback of adopting this basis, rather than the statutory scheme of capital allowances, is that no relief is available on the initial purchase of the plant or machinery that is subsequently replaced or repaired. For example, Miss Mallalieu would not have been entitled to any relief on the acquisition of her original wardrobe.
Miss Mallalieu’s expenditure was denied relief because it was not incurred wholly and exclusively for the purposes of her profession. It therefore failed the first test in what is now section 74(1), Taxes Act 1988. As Lord Brightman, who represented the majority of the House of Lords, said:
‘Of course, the taxpayer thought only of the requirements of her profession when she first bought (as a capital expense) her wardrobe of subdued clothing and, no doubt, as and when she replaced items or sent them to the launderers or the cleaners she would, if asked, have repeated that she was maintaining her wardrobe because of those requirements. It is the natural way that anyone incurring such expenditure would think and speak. But she needed clothes to travel to work and clothes to wear at work, and I think it is inescapable that one object, though not a conscious motive, was the provision of the clothing that she needed as a human being. I reject the notion that the object of a taxpayer is inevitably limited to the particular conscious motive in mind at the moment of expenditure. Of course, the motive of which the taxpayer is conscious is of a vital significance, but it is not inevitably the only object which the Commissioners are entitled to find to exist. In my opinion the Commissioners were not only entitled to reach the conclusion that the taxpayer’s object was both to serve the purposes of her profession and also to serve her personal purposes, but I myself would have found it impossible to reach any other conclusion.’
Relief for Clothing
His Lordship differentiated between Miss Mallalieu’s case and those applicable to self-employed individuals whose occupation requires them to wear a uniform. He gave the example of a nurse and a waiter, the latter being required to wear tails. In such cases, his Lordship would have had no difficulty with a body of Commissioners finding that, as a matter of fact, the individuals had incurred expenditure on their clothing wholly and exclusively for the purposes of their occupations. It may not always be easy to discern the boundary between cases: as his Lordship held, ‘such cases are a matter of fact and degree’.
Based on the Mallalieu decision, it is often suggested that, uniforms excepted, there can be no tax relief for an individual’s expenditure on clothing. However, it would appear that such expenditure could qualify for plant and machinery allowances.
The basic requirements for such allowances are that a person is carrying on a qualifying activity (as defined), incurs capital expenditure on the provision of plant or machinery wholly or partly for the purposes of that qualifying activity, and owns the plant or machinery as a result of incurring the expenditure (section 11, Capital Allowances Act 2001).
In the vast majority of cases, the first and third tests would not be difficult to overcome. The key test is that the expenditure is on plant or machinery. The clothes one wears might not come within the everyday understanding of the word ‘plant’.
Indeed, when Mr Justice Rowlatt was asked whether a solicitor could claim capital allowances on his books, he held in Daphne v Shaw 11 TC 256 that:
‘I cannot bring myself to say that the books of a lawyer, whether a barrister or a solicitor or, I am sorry to say, a judge … I cannot bring myself to say that such books as those people use to consult are "plant" … I am sure [that] 99 people out of a hundred would agree [that] … the books which a man consults for the purposes of information … [are not his plant] … It is hard, but I have to deal with the words of the Act of Parliament, and unless I can say books are "plant" I cannot do anything for Mr Daphne.’
It took 50 years and Lord Denning sitting in the Court of Appeal for this decision to be overturned ( Munby v Furlong 50 TC 491). In the course of the judgment, Lord Denning referred to the words of Lord Donovan (in a case not reported) in which he stated:
‘If you ask me for the ordinary meaning of the word "plant" I would not say that a horse and cart were plant, I would not call the partitions in a building separating a room "plant", but still the cases show that they are plant for tax purposes.’
Lord Denning emphasised that:
‘the courts do not apply the meaning to the word "plant" as the ordinary Englishman understands it. It has acquired by the course of decisions a special meaning in tax cases. It has acquired a special meaning; it seems to me, in the interests of fairness, that "plant" extends virtually to a man’s tools of trade ... It extends to the things which he uses day by day in the exercise of his profession.’
The normal starting point when ascertaining the meaning of the word plant is the employers’ liability case of Yarmouth v France (1887) 19 QBD 647. There, Lord Justice Lindley held that:
‘… it includes whatever apparatus is used by a businessman for carrying on his business – not his stock-in-trade which he buys or makes for sale; but all goods and chattels, fixed or moveable, live or dead, which he keeps for permanent employment in his business.’
A barrister’s wig and gown would fall within this definition (provided that one reads the word ‘apparatus’ sufficiently widely). Indeed, had there been any dispute regarding this, one would have expected these to have been referred to in Miss Mallalieu’s case. By the same token, there is no reason why a barrister’s suit or dress cannot be considered to be plant as it is used for the purposes of the barrister’s profession as it assists the barrister, whether for purposes of image or compliance with professional guidelines, to carry on his profession.
For readers wondering how far this can go, I would refer them to Norman v Golder 26 TC 293 which decided that the human body does not constitute plant.
The extent of such relief
While many female barristers may feel that they, more than their male colleagues, incur expenditure on clothing that they would not otherwise wear, there is no reason to suggest that only female barristers would be entitled to claim capital allowances on their court dress. Not only would it appear that all barristers should be able to obtain capital allowances in respect of their clothing, but all self-employed taxpayers should qualify for such relief.
However, this is not without limits. If an item of plant is used partly other than for purposes of the qualifying activity, sections 205 to 207, Capital Allowances Act 2001 require allowances to be reduced ‘to an amount that is just and reasonable in the circumstances’.
It is likely that the Revenue would argue that there should be two ‘just and reasonable’ reductions in most cases. The first will reflect the time that the items of clothing are worn when the self-employed person is not engaged in the qualifying activity, for example, out of hours and while travelling to and from work. Secondly, it may also be argued that a reduction should be made to reflect the dual purpose of wearing the clothes while engaged in the activity. These were the grounds that caused Miss Mallalieu’s claim to fail.
In my opinion, the first reduction would be entirely valid, but the second is somewhat more questionable. While the Revenue would probably cite the usual reasons of ‘warmth and decency’ as representing an alternative purpose for wearing ‘working’ clothes, it should be possible to argue that these purposes could be adequately ‘covered’ by a cheap T-shirt and pair of jeans. At the other end of the spectrum, it is likely that relief on excessively expensive suits would be restricted, following the precedent of G H Chambers (Northiam Farms) Ltd v Watmough 36 TC 711.
However, ultimately, these would be matters for the courts and each case would then be decided on its own merits.
Relief for employees
It is my view, however, that employees are not entitled to claim capital allowances in respect of their clothing. The cost incurred by an employee maintaining work clothes was denied relief in Hillyer v Leeke 51 TC 90. As far as capital allowances are concerned, section 36 requires that ‘plant or machinery is necessarily provided for use in the performance of the duties of the employment or office’ [emphasis added]. It is submitted that the narrow reading of the necessity test would preclude relief being obtained.
