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I wonder if readers can help me explain a subject that seems to crop up on a regular basis with my clients, both employed and self employed; that is clothing and protective clothing.
Clients often ask whether they can obtain tax relief on the cost of their work clothes. If this is standard clothing, then as far as I am aware, the answer is 'no', and I generally them tell them the story about the lady barrister. If it is, say, a set of overalls for a car mechanic, then presumably the answer is yes (although I guess this begs the question of whether he wears them at the weekend, when working on his own car or decorating).
But where is the dividing line drawn?
I am often presented with receipts for jeans and boots that could be 'fashion' items for all that I know, but which my, for example, plasterer client tells me that he wears at work and which have to be replaced regularly. It appears that a substantial amount of plaster ends up on him rather than the wall! Are there any guidelines as to where normal clothing ends and protective clothing starts? And what about laundering costs? Would this be allowable for both protective clothing and, say, a suit worn by a solicitor, even though the cost of the suit itself is not allowable?
Finally, my estate agent client likes his staff to look smart and buys them specific suits, trousers, skirts, blouses and jackets from a range at a well-known high street store to give a 'corporate image'. I presume that this is allowable as part of the remuneration package, but is there a benefit in kind charge?
Query T16,721 — Fashion Victim.
Reply from Jim:
The lady barrister mentioned is to be found in the case of Mallalieu v Drummond [1983] STC 665. The disallowance was simply because the clothing was such that it might have been used for ordinary civilian purposes. The barrister chose not to wear it for ordinary civilian purposes owing to a preference for wearing more colourful clothes of better style.
The fact that the wearing of such clothes was a requirement of the Bar was not considered a point in Ms Mallalieu's favour as it could not be established that the money spent on the clothing was exclusively for the purpose of her profession. Equally, the clothes were for the purpose of warmth and decency. It followed that the laundering of the barrister's clothing was not allowable. So if the clothing fails, so do the laundry costs.
For the same reason, the readers of this particular magazine are not entitled to claim for smart — or boring — attire, irrespective of losing the goodwill of their clients. The decision in Hillyer v Leeke [1976] STC 490 leaves no doubt here, with Justice Goulding commenting 'The employee has to wear something and the nature of his job dictates what that something will be …'.
Lord Brightman, in conclusion in the Mallalieu case, provided an explanation which is part of the way to the hard and fast rule which Fashion Victim is seeking. He advised that the costs of uniforms and protective clothing would not be disallowed by this decision. It is a question of fact and degree. The cost of specialist clothing required to discharge the duties of the trade, profession or vocation is allowable. Fact and degree coupled with good record keeping and common sense are all important. If a self-employed car mechanic uses his overalls when working on his own car, the argument must be that the purpose of the overalls was wholly and exclusively for the trade; the exclusivity does not need to be established and private usage is incidental. An employed car mechanic provided with overalls, or even claiming an allowance if personally paid for, would argue that the benefit is marginal in light of Pepper v Hart & Others [1992] STC 898. If every weekend is spent working on his own car, then perhaps a change of vehicle should be considered!
A plasterer client of mine appears to be more careful than Fashion Victim's, but the nature of the trade does mean rather more expected ruination of clothing. It is not unusual for him to wear out four or five pairs of cheap jeans and a couple of pairs of protective footwear in a year; these are thrown away. I have no hesitation in claiming such items owing to the exceptional wear and tear. It is worth looking at the Revenue's Employment Procedures Manual (EPM2260) and the deductions agreed with various trade unions. It is unlikely that an HMRC officer would be too worried if unsupported claims for the particular trade were made on these reasonable lines.
Turning to the estate agent client; yes, benefits in kind will arise to the staff by the provision of clothing, as the items described are neither protective nor uniforms under the general taxing provisions of ITEPA 2003, s 62. However, by having the estate agent's motif clearly affixed to the clothing, the risk of any challenge as a benefit is minimised. The motif must be visible, reasonably large and non-detachable. The estate agent may, however, decide to approach HMRC and request that these items be wrapped up in a PAYE settlement agreement, depending upon the staff's reaction.
Reply from Monty B.:
The first thing that has to be said is that there is a fundamental difference between those taxpayers who are employees and those who are self employed when considering any claim for clothing. Employees are bound by the 'wholly, exclusively and necessarily' rule in ITEPA 2003, s 336. Self-employed workers are governed by the 'wholly and exclusively' rule in TA 1988, s 74(1)(a) (now ITTOIA 2005, s 34).
In theory, this limits claims for clothing by an employee, but in practice some relief is allowed.
The various trade unions and trade associations have agreed fixed sum allowances per year that can be claimed by employees in different trades and professions, incorporating clothing and tools, etc.
A list of these allowances is set out in Tolley's Income Tax 2005/2006 (Chapter 26, para.27). In the case of members of HM Armed Forces, a uniform allowance is given, but in practice the amounts are reimbursed by the employer. However, this means that there is no benefit in kind in such circumstances.
Turning to self-employed tradesmen and professionals, HMRC like to emphasise the decision in Mallalieu v Drummond [1983] STC 665, where the sober clothing worn by a lady barrister in court was disallowed as a tax deduction. This was very much on the basis of 'dual purpose' expenditure. She could have worn the clothing at home or at a relevant social occasion.
This case does not prevent any claim for protective clothing, as HMRC's Business Income Manual at BIM37910 makes it quite clear that self-employed workers can make a claim for the cost of protective clothing or uniforms. This can be extended to the laundering of such items. Obviously there is some 'private use' of overalls, etc. worn by a tradesman, but this is effectively ignored. There is also a 'grey area' as to what is or is not protective clothing.
The laundering cost of a suit worn by a solicitor would definitely be disallowed, on the basis that the cost of the suit itself is not claimable. As regards the 'uniform' supplied by an estate agent (and also adopted by some banks and other institutions), my opinion is that there is no benefit in kind, as employees would not normally want to wear the uniform on social occasions, so that there is no 'dual purpose'. However, there remain some 'grey areas' regarding this whole subject.
Editorial note:
Keith Gordon's article Suits you, madam may be relevant here. Keith suggests that clothing may fall within the definition of plant for the self employed and that a proportionate capital allowances claim may be made.
HMRC's comments in the Employment Income Manual at EIM32480 and EIM32515 on the upkeep and replacement of clothing and 'dirty money' may also be of interest.
