.png)
.png)
MIKE DOWN and DAVID HEATON consider the Revenue's refusal to grant tax relief for certain expenses of professional rugby players
Tax advisers with an interest in sport may recall the authors' previous article, A try for a Revenue conversion. This reviewed the implications for professional sportsmen and sportswomen of the decision in Ansell v Brown [2001] STC 1166, and considered the merits of what appeared to be a concerted Revenue attack on expense claims made by rugby players under section 198, Taxes Act 1988.
This article examines our subsequent attempts to move towards some form of general consensus, so that:
- numerous open enquiries might be concluded; and
- a basis for making future claims without the prospect of automatic selection for enquiry might be agreed.
The areas of dispute considered in the previous article were discussed with the Revenue at a lengthy meeting. In attendance was an international rugby star employed by a leading club.
The player provided an excellent factual summary of what is required from a typical professional sportsman in the 21st century: strict contractual obligations, modern fitness régimes, diverse training venues, a controlled and scientifically determined diet, etc.
The expenses incurred by the player for which the Inspector refuses tax relief are those relating to the cost of:
- travel to away matches;
- travel to training venues;
- dietary supplements.
Readers will be well aware of the extremely strict conditions laid down in section 198. That an employee can claim tax relief only for monies 'expended wholly, exclusively and necessarily in the performance of the duties of the office or employment' is a test which the Revenue, backed by ever-developing case law, applies with a total lack of flexibility.
At this stage, it is right to stress that the local Inspector entered into negotiations in the spirit of trying hard to (in his words) 'establish more detail and see whether we, the Revenue, could accept that the boundaries had been properly interpreted or were capable of being extended'.
Our views were forwarded to Revenue head office, which flatly refuses to consider any possibility that the interpretation of section 198 might need to be relaxed in this changing world.
We will discuss the future of section 198 towards the end of this article but, to begin with, we will take a look at the updated arguments relating to the three areas set out above.
Travel to away matches
Section 198, Taxes Act 1988 kicks off with 'If the holder of an office is obliged to incur and defray '. The Inspector interprets this phrase as referring to 'each and every holder of the office', with the office holder being 'obliged to incur the expense'.
The Revenue accepts that away venues are 'temporary places of work' and thus consideration can in theory be given to granting tax relief for 'qualifying travel expenses' to the away team's ground. Clearly, if no transport is provided, players would be obliged to incur their own travel costs and hence relief would be due.
Typically, the club provides a coach starting from the home ground. This is likely to cause little difficulty where a player lives close to the club and can travel conveniently by coach. However, 'local' players are becoming less common these days. A result of professionalism is that some players now live considerable distances from their clubs, which is clearly a matter of personal choice.
The strict Revenue line is that players who decide not to travel to the home ground to catch the team coach are exercising just that personal choice, i.e., they are not obliged to make their own travel arrangements and relief for the cost of expenses incurred is not deductible. Where a player lives, say, half way between the home and away grounds and incurs his own expenses in getting to a convenient pick-up point, the Inspector concedes that there 'may be a case for looking at some individuals more sympathetically in practice, if not in principle'.
This is all well and good, but it gives no general guidelines and does not address the main issue, viz. that the player is obliged to get to the game and that the method and choice of transport are wholly irrelevant.
It is not hard to envisage a similar situation occurring outside the world of rugby. For example, four office workers are required to attend a training centre 100 miles away.
The office pool car is made available, but is used by just three of them. The fourth suffers from car-sickness and chooses instead to travel by train. It would be interesting to learn whether the Revenue's strict interpretation of section 198 would result in an entry being required on the individual's form P11D.
Would it treat any reimbursement of the train fare as being outside any general dispensation because the individual is not obliged to travel by train? One assumes that it would, since the Revenue's view would be that as transport is provided, the individual is exercising personal choice not to use it.
The question not yet answered is whether it is sufficient for the employee to be obliged to incur and defray qualifying travel expenses, or whether he has to incur those particular qualifying travel expenses.
It is illogical to argue that no deduction is due because the particular expenses incurred would not be incurred by each and every holder of the office or employment. In the case of our professional rugby player, unless the whole team lived under one roof, there would be at least 15 routes, differing in some way, to away matches.
Travel to training venues
We have always taken the view that professional rugby players are contractually required to keep themselves fit and thus it matters not where the training takes place. When training, the players are working to an exercise régime set by the club and are therefore performing the contractual duties of the employment.
Assuming that the Inspector accepts that training is 'performing the duties' (and it is not totally clear that he does, despite the plain contractual requirements), we then need to consider whether the training venues are permanent workplaces or temporary workplaces.
Readers will be well aware that travel from home to a permanent workplace is ordinary commuting. This is the general rule under which the costs of getting to work are not tax deductible.
As stated above, many professional rugby players now live far away from their clubs. This often results in the clubs making special arrangements for the players to train near to their homes. It will be apparent that if the cost of getting to the training venues is to meet the stringent tests set out in section 198, the travel cannot be within the definition of ordinary commuting.
Clearly the club's ground will be a permanent workplace. Furthermore, it is accepted that if a particular training venue is close to the ground and used regularly, this is also likely to be a permanent workplace. The costs of travel between two permanent workplaces are allowable (unless one of them is the employee's home; see Kirkwood v Evans [2002] STC 231).
Whether gymnasiums, swimming pools, running tracks and the like are permanent or temporary places of work will turn on three factors:
- whether the player necessarily has to attend in the performance of his duties;
- how regularly he visits the fitness venue;
- what tasks he performs when he gets there.
The Inspector attaches great importance to the definition of temporary workplace and in particular to the words 'limited duration' and 'temporary purpose'. Our view is that training will always be a task of limited duration, but the Inspector doubts this. He contends that the cost of travel to training venues is not allowable, claiming that the venues are permanent workplaces because:
- there are frequent visits to the same gymnasiums, leisure centres, etc.;
- the same training routines are carried out each time;
- the facilities provided by the club are conveniently situated for the player.
The regularity of visits to a particular fitness venue is clearly a factor to be taken into account. Somewhat bizarrely, professional players will be well-advised to go swimming at their local pool on different days and at different times each week if they do not want the pool treated as a 'permanent workplace'.
However, surely what matters more is the amount of time spent at the venue as a proportion of the total time spent in performing the duties. Also, it must surely be the case that the activities undertaken at each training session are of limited duration, i.e. they are self-contained or just a small part of a more continuous type of activity.
The previous Taxation article said that the Inspector states that this 'brings out the potential for different outcomes for different individuals and this is not at variance with the legislation'. So far so good.
However, a real difficulty remains on interpretation of 'the legislation by reference to the contract and the individual's performance under it'. Any attempt at achieving consistency of treatment is thus frustrated. The Revenue's booklet 490 contains a number of 'what if' examples, but none of them really helps here.
Dietary supplements
At the meeting with the Revenue, the player gave a detailed explanation as to why it was necessary for him to take dietary supplements. It soon became clear that considerable advancements in sports science have taken place over the past few years and that the rugby player of today is far more in tune with the physical needs of his body to enable him to optimise performance.
The player confirmed that, before taking up the employment, he had already attained a high level of fitness in terms of body mass, agility and speed. This point appears to have been overlooked in the decision in Ansell v Brown, in that the player would not have been hired as a regular member of a professional team if he was not physically suited to the job.
The dietary supplements in question do not put him into a position to perform his duties, since he was already there when picked for the team. The club required him to maintain his fitness, strength and power, and the supplements were designed to replace the vital minerals and vitamins used up by a heavy training régime, and enable the player to recover quickly from the exertions of games and training sessions.
The player explained that the club as employer expected him to take whatever legal substances were available to maintain the best possible personal physical condition. To assist, the club provided tailored advice on how regular strenuous exercise depletes the body's chemical store and the replenishment products available.
Crucially, the standard employment contract for professional rugby made it abundantly clear that it was down to the player to ensure that he used every available method to maintain peak fitness. In other words, personal choice did not enter into it; dietary supplements, as a category of expenditure, would be one that each and every professional player would necessarily have to incur in the performance of the duties of the employment.
In our view, there are powerful arguments which suggest that if a fresh appeal on the Ansell v Brown decision were to be taken (and this would have to be to the Court of Appeal), the result might well be different.
Perhaps for this reason, the Revenue is staunchly defending its position. Clinging fiercely to the duality of purpose principle as set out in Ansell v Brown, the Inspector concludes with the statement 'all players are human beings before, during and after matches and the case has confirmed Revenue thinking about food consumption by individuals'.
We are not talking about 'food' as such, but legal medicines dealing with the damage done to the body by the job. A support bandage for a damaged joint would be deductible, so why not, say, a cod liver oil tablet to protect the joint from the inside? (This is merely an example to illustrate the principle: there are probably as many tax consultants as tax Inspectors with sufficient medical qualifications to argue the point, and the authors claim no specialist knowledge beyond that provided by the club's doctors to the player.)
Furthermore, the supplements used will not be the same for all players, as their training focusses on different facets of their game: prop forwards need more strength than wingers, who need more sprinting speed.
The Revenue will undoubtedly argue that their differing costs are not therefore such as would have to be incurred by each and every holder of the employment. We made the point that the law applies to the job in respect of which the claim is made, not the generic description of 'professional rugby players', who come in all shapes, sizes and speeds.
Incidentally, the Revenue's comments on the Ansell v Brown decision appear in its Schedule E Manual at paragraph SE32510.
Conclusion
The continuance of the dispute demonstrates just how far the Revenue is determined to sideline any perceived attempts to find a way through 'Fortress 198'.
The courts have ensured that the interpretation of the section is so tight that the Revenue feels it has the legal ammunition to take any situation to the extreme and kick into touch the tax deductibility of expenses which many people would consider to be a wholly legitimate touchdown under the posts.
The world is changing fast and yet many tax laws are based on old-fashioned and archaic rules which have no bearing on modern business practice. Section 198, despite the 1998 changes, is certainly at the top of the list of the rules which need updating.
The time has come for a general re-think, or would any suggestion of a more 'sensible' set of rules be regarded as too great a political risk in terms of tax loss?
Mike Down is a director and David Heaton is a partner at Baker Tilly. The views expressed in this article are their own and do not necessarily reflect those of Baker Tilly.
Funding for a suitable 'test case' covering the issues raised is being sought. If any readers are willing to contribute in any way, contact Clive Davies at Alexander Partnership, 5 West End, Llanelli, SA15 3DN, tel: 01554 773633.
