Home Alone

Home workers will find it difficult to claim tax relief on travel and home office expenses. MIKE LEIGH explains why.

MODERN TECHNOLOGY ALLOWS people to work increasingly from home. I have done this myself and the benefits are enormous, giving more contact with family and more time available for work and other activities, such as fitting in the odd hour to see your offspring play for the school during the week without taking a day off work. More importantly, perhaps, it is not necessary to suffer the rigours of commuting, and less people travelling reduces the burden on already overcrowded public travel services and the environment.

This article looks at where an employee works for most of his time from home and only works at his employer's premises occasionally. It considers whether he can claim the cost of expenses in maintaining an office at home and of travelling between his home and his employer's base when it is necessary to go there. Statutory references are to Taxes Act 1988, unless otherwise specified.

Kirkwood v Evans

The tax position is in the light of the recent High Court decision in Kirkwood v Evans [2002] STC 231. Mr Evans was a civil servant living in King's Lynn who participated since 1996 in a home working scheme. This required him to provide his own office facilities at home at his own expense and to attend his base office in Leeds once a week to deliver completed work and collect new work. He also took the opportunity to download information from the employer's computer network, which he could not do at home.

The Revenue refused his claim to deduct the costs of maintaining his office facilities at home, mainly extra heating and lighting costs, and the costs of his travel from King's Lynn to Leeds. Mr Evans won before the General Commissioners, but lost on appeal before Mr Justice Patten in the High Court.

Expenses up to 1997-98

Office expenses and, up to 5 April 1998, travel expenses can be claimed under section 198(1), Taxes Act 1988 if they are incurred 'wholly, exclusively and necessarily in the performance' of the duties of the employment. The decision in the Evans case denies a tax deduction on two grounds. Firstly, although the home working scheme requires Mr Evans to maintain office facilities at home, the scheme itself is voluntary. Therefore, it is not necessary that he works from home; he has simply chosen to do so. Secondly, even if it were compulsory for him to work from home, the scheme does not make it mandatory that he maintains a separate room for work. Therefore, the costs of heating and lighting have a dual purpose, as they are also incurred to maintain the home as habitable.

In the decision, it is stated that Mr Evans had to use spare workstations at the Leeds office when he visited there, and that office facilities which he had there previously were no longer available to him. If so, then there may be an argument, not considered in the judgment, that, because of lack of space, it is necessary for some of the employees to work from home, which could overcome the first of the grounds for refusing the deduction.

Even so, the argument might fail because of the decisions in Ricketts v Colquhoun 10 TC 118, Pook v Owen 45 TC 571 and Taylor v Provan [1974] STC 168. Essentially, the relevant part of these decisions is that, although someone is required to work somewhere other than the employer's premises, the fact that he works at home is still not a necessity; he could work equally well at the public library or at any other home he has or anywhere else. For Mr Evans, though, this might not be practical, in view of the confidential nature of his work for the Department of Social Security's adjudication service.

Travel expenses from 1998-99

From 6 April 1998, travel expenses are easier to claim as deductible if they are 'qualifying travelling expenses' as defined in section 198(1A). Subsection (a) effectively retains deductibility for expenses which were previously allowed under section 198(1). Subsection (b) introduces a new alternative of:

'other expenses of travelling which -

The terms 'ordinary commuting' and 'private travel' are then defined in Schedule 12A. In the present context, a claim fails if it is between the employee's home (or somewhere else which is not a workplace) and another such place or a 'permanent workplace'. A permanent workplace is somewhere that the employee attends regularly in the performance of his duties and which is not a 'temporary workplace'. A claim will be allowed, therefore, for travel between home and a temporary workplace. This was confirmed by the judge in the decision in the Evans case, who confirmed that the Revenue cannot now use the precedent of Ricketts v Colquhoun to deny relief for expenses of travel between home and a temporary workplace.

Under paragraph 4 of Schedule 12A, a '"temporary workplace" means a place which the employee attends in the performance of the duties of the employment for the purpose of performing a task of limited duration or for some other temporary purpose'. This is further amplified by paragraph 5 but, for most home workers, this will not apply to the employer's premises because the duties will not be carried out there 'to any significant extent'.

We have, therefore, to consider the prime definition of 'temporary workplace'. I am involved in a difference of opinion with an Inspector which centres on the meaning of the phrase 'for the purpose of performing a task of limited duration or for some other temporary purpose'.

Meaning of task

The Inspector's view is that the 'task' is the employee's employment as a whole. If so, then it is neither of limited duration nor for any other temporary purpose. However, I contend that this is untenable, as it seems to make a nonsense of paragraph 5. The word 'task' is not defined in the legislation, so its meaning is the normal dictionary definition. Dictionary definitions which I have seen point to a task as something specific, for example a piece of work, rather than a general grouping of things to do, which is what the employment is.

The judge in the Evans case concluded that, although for only one day a week, Mr Evans' attendance at Leeds was a permanent and continuing part of his duties. This is dealt with briefly in one paragraph of the judgment, which also states that Mr Evans had conceded that the Leeds office was not a temporary workplace for him, even though the General Commissioners had concluded that it was. The judge justifies this view because 'this attendance was both regular and was not "for the purpose of performing a task of limited duration or for some other temporary purpose"'.

Perhaps Mr Evans was ill-advised to admit that Leeds was a permanent workplace. I would argue against this on the grounds that he did certain specific tasks each time he went there, which were of limited duration, namely the delivering of work since the last visit, the taking of new work, and downloading from the database.

On the other hand, could the word 'task' refer to doing these things each week continually? That is possible, but I prefer my construction which appears to be supported by Example 2 in Tax Bulletin 32:

'Bruce normally works in a branch office in Manchester but has to attend the company's headquarters in London for a management meeting once a month. Bruce attends the London headquarters regularly, but it is not his permanent workplace because he attends only for a temporary purpose - each visit is self contained. His journey from his home to London is not therefore ordinary commuting and he is entitled to relief for the cost of his business travel.'

In my client's case, the employees attend the employer's premises as and when they need to, or when it is convenient to do so and they carry out specific tasks each time. For example, they may attend a brainstorming session on a client's affairs on one visit, and a company management meeting the next time. They might go there one or more days one week and then not return for several weeks, particularly if their current client is out of town. Their terms of employment do not require them to attend the employer's premises and, indeed, they are encouraged to work at home and at clients' premises whenever possible.

Here, I think there is more scope for focusing on the meaning of the word 'task' to determine that the employer's premises are a temporary workplace.

I also think that the Evans decision is at odds with another extract from Tax Bulletin 32 under the heading 'Employees Who Work At Home':

'Most employers provide all the facilities necessary for work to be carried out at their business premises. So where employees work at home they usually do so because it is convenient rather than because the nature of the job actually requires them to carry out the duties of their employment there. However, where it is an objective requirement of an employee's duties to carry out substantive duties at the home address, then his or her home is a workplace for tax purposes.

'Where home is a workplace, an employee is entitled to relief for journeys he or she has to make between there and a permanent workplace in respect of the same employment because this travel is "in the performance of the duties of the employment". An employee whose home is a workplace is entitled to relief for journeys between there and a temporary workplace in the same way as an employee who does not work at home.'

The words italicised indicate that travel expenses are allowable even if the employer's premises are a permanent workplace.

Conclusions

The Evans case is certainly not helpful for employees working from home. As regards travel expenses, though, there are contradictions with established Revenue practice and not all of the arguments available to an employee have been tested.

Unfortunately, Mr Evans represented himself in the High Court. I hope that the case will be taken further with professional representation. I would be interested to learn of any affected organisations that may wish to set up a fighting fund to appeal this decision or sponsor another case.

For those contemplating new home working arrangements, in order to claim tax relief for home maintenance expenses, I suggest that the scheme should, if possible, include the following rules:

• Recognition that the employer's office cannot provide the facilities, e.g. because of lack of space.
• A statement that working from home (at least for part of the time) is a condition of the employment, which might be easier to implement if this comes into effect at the start of the employment.
• A requirement that, e.g. to preserve confidentiality, the employee cannot work elsewhere than at his home or the employer's premises.
• A requirement that, at home, the workplace is vetted by the employer, which may in any event be a requirement for health and safety reasons.

It would then be helpful if additional costs of working at home could be computed scientifically by reference to periodic meter readings. This might persuade an Inspector, if not the court, that the cost of the additional fuel is tax deductible.

Visits to the employer's premises should be irregular and made for several different purposes. The employees should not be required to attend the employer's premises. I believe, then, that the travel expenses should be deductible, but many Inspectors will disagree.

If the Government wants to encourage green issues by reducing commuting, then some clarification should be given that the Revenue will accept that tax deductions will be available.

Mike Leigh is the tax partner at Carter Backer Winter, Chartered Accountants and Business Advisers and can be contacted on 020 7309 3866 or mike_leigh@cbw.co.uk.

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