17.08.15 Deductible or Non-deductible? Tim Healy's Case (TC04425) for Accommodation Expenses

How hard can it be? Deductible or non-deducible? It turns out that this is often a complex question, and the Tim Healy case is a prime but interesting case on expenses and the factors which are taken into account. 

Tim Healy is a self-employed actor who included the following expenses in his 2005/06 return: £32,305 for accommodation, £4094 for subsistence and £4080 for taxi fares. He has a home in Cheshire, but from April 2005 until December 2005 he leased a flat in London. This was because of an acting role during this time that he had in Billy Elliot the Musical, which was on stage at The Victoria Place Theatre (about a mile from the leased flat).

The original case was in March 2012 (Tim Healy TC01940). Here, the subsistence costs and taxi fares were disallowed due to a lack of evidence to satisfy the wholly and exclusively test – no receipts were kept for the taxis and the £4080 figure was based on an averages and not actual expenditure. Also, since the distance from the flat to place of work was less than a mile, he could have walked (and probably did so sometimes), and so the figure was not backed up. For the subsistence, it was deemed that subsistence incurred whilst living in a flat is not the same as subsistence incurred when staying at a hotel. The accommodation was allowed on the basis that it was wholly and exclusively required for the purpose of his trade (section 34, Income Tax (Trading and Other Income) Act 2005. Some factors that aided this decision were that he lived out of a suitcase while there and went back to his home in Cheshire on the weekends.

HMRC appealed this case to the Upper Tribunal (CRC v Tim Healy) where the Upper Tribunal found that in the original case the correct test for duality had not been applied to the accommodation. The case was referred back to the First-tier Tribunal.

It was found in the next and most recent hearing which was published in June 2015 (Tim Healy TC04425) that there was a duality of usage for the accommodation. The main influence for this decision was that Mr Healy decided on renting this flat (which has 3 bedrooms) with the intention that family and friends could stay. This meant that the flat was not rented wholly and exclusively for business purposes. No proportion of the rent could be assigned to the business purposes and so this was also disallowed.

This is a good example for the rulings around accommodation expenses.