SPC00557

EXPENDITURE BY EMPLOYEE – professional training expenses – whether wholly exclusively and necessarily incurred in the performance of the duties of the employment – no – appeal dismissed

THE SPECIAL COMMISSIONERS

	CONSULTANT PSYCHIATRIST	Appellant

	- and -

	THE COMMISSIONERS FOR HER MAJESTY’S
	REVENUE AND CUSTOMS	Respondents

		Special Commissioner: 	DR JOHN F. AVERY JONES CBE 

Sitting in private in London on 13 July 2006

The Appellant in person

John Hughes, HM Inspector of Taxes, HMRC Appeals Unit Scotland, for the Respondents

© CROWN COPYRIGHT 2006

ANONYMISED DECISION

1.	This is an appeal by Consultant Psychiatrist against a closure to an enquiry into her tax return for 2003-04 denying tax relief on professional training costs of £9,118.  The Appellant appeared in person; the Revenue were represented by Mr John Hughes.
2.	The Appellant applied in advance to the Clerk to the Special Commissioners for a hearing in private pursuant to Regulation 15 of the Special Commissioners (Jurisdiction and Procedure) Regulations 1994: 
“15—(1) Subject to the following paragraphs of this regulation, hearings before a Tribunal shall be in public. 
 (2) A Tribunal may direct that all or part of a hearing shall be in private— 
 (a)   upon the application of all the parties by notice to the Clerk; 
 (b)   upon the application of any party by notice to the Clerk; 
 (c)   of its own motion, 
if in each case, a Tribunal is satisfied that a hearing in private is necessary— 
 (i)   in the interests of morals, public order, national security, juveniles or for the protection of the private life of the party; or 
 (ii)   it considers that publicity would prejudice the interests of justice. 
 (3) Before determining an application under paragraph (2)(b), or giving a direction under paragraph (2)(c), a Tribunal shall give all other parties to the proceedings an opportunity to make representations. 
 (4) Before giving a direction under paragraph (2) that the entire hearing be in private, a Tribunal shall consider whether only part of the hearing should be heard in private.”
She explained that she did not want her disturbed patients looking her up on the internet and finding this case.  Mr Hughes did not object.  While I consider that this is a borderline case of protecting her private life I accept that the nature of her patients makes it different from a normal case.  Clearly this objection would not be met if part of the hearing were in private.  Accordingly I accepted her request for a hearing in private.
3.	I had a bundle of documents and heard evidence from the Appellant.  I find the following facts:  
(1)	Throughout 2003-04 the Appellant was employed by an NHS Trust (“the Trust”) as a consultant psychiatrist in psychotherapy under a pre-2003 national consultant contract, part-time for 7 sessions [essentially half-days] per week (full-time is 11 sessions).  
(2)	The job description, which does not appear to be specifically included in the printed form contract dated 20 December 1999, but which I find is a contractual document, sets out the duties of the post and lists as essential qualifications for the post that the holder be a registered medical practitioner with Membership or Fellowship of the Royal College of Psychiatrists (or equivalent); the Appellant holds their Membership qualification (MRCPsyc).  It lists as essential training “High training equivalent to CCST in psychodynamic and systemic psychotherapy,” which the Appellant holds.  It also lists as desirable training “Experience of specialist higher training in psychodynamic or systemic psychotherapy or group psychotherapy.”  
(3)	The deduction claimed was in respect of training at an institution accredited by the British Psychoanalytic Council consisting of supervision costs of £1,548, training seminars of £390 and personal analyses of £7,180.  The training is in psychodynamic psychotherapy, which is within the heading of desirable training in the job description.  After the training she will be entitled to be on the register of psychotherapists maintained by the British Psychoanalytic Council.  The Appellant said (and I accept) that the Trust was extremely short of funds and there would be no question of its paying for the training.
(4)	The Appellant told me (and I accept) that the Royal College of Psychiatrists requires its Members to carry out continuing professional development (“CPD”).  Although it was not produced by the Appellant I have taken the liberty of looking at the Royal College’s website which under the heading “Policy for CPD” states that “20 hours of external and 30 hours of internal CPD continues to be the minimum annual requirement for psychiatrists to remain in good standing for CPD.”  This is in addition to an expected 100 hours of reading or other self-directed learning.  Since the job description requires the holder to be a Member or Fellow of the Royal College, I infer that in the last resort she would lose her Membership qualification if she did not do at least the minimum CPD, and in such an event she would no longer be qualified for her post for which Membership is an essential qualification.  There is currently no annual or periodic renewal of qualification to practice medicine but this is being considered currently.  The Royal College requires annual appraisal of its members, including CPD requirements.
(5)	The Appellant’s head of department, wrote:
“As an essential part of [the Appellant’s] contract she is expected to engage in continuing professional development.  [The Appellant] specialises in psychoanalytic psychotherapy.  Her progression in this field requires her to train as a psychoanalyst in addition to the NHS training she has already received.  It not only increases the depth of her clinical knowledge and skill, but also places her in a more senior position to teach and supervise.  It is normal practice for consultant psychotherapists to have undertaken this training, either before they are appointed to a post or as part of their continuing professional development as is the case with [the Appellant].”
The first sentence, although written in terms of “expected to” I regard this as a correct statement of the terms of the Appellant’s contract for the reasons given above.  The last sentence, however, states that “it is normal practice” for a holder of the Appellant’s post (if not already done before appointment) to undertake the training in question as part of their CPD.  This I construe as a statement of normal practice rather than a contractual requirement.  In other words, while some professional development is a term of the contract, this particular training goes beyond the contractual requirement.
(6)	As the holder of a part-time contract the Appellant is free to engage in private practice for the rest of her time, but she does not do so.  Although she may possibly do private practice in the future, she has not definitely decided to do so.  She would have preferred a full-time post with the Trust.  The training is not a required qualification for private practice.
4.	Section 336 of the Income Tax (Earnings and Pensions) Act 2003 provides:
“Deductions for expenses: the general rule 
 (1) The general rule is that a deduction from earnings is allowed for an amount if— 
 (a)   the employee is obliged to incur and pay it as holder of the employment, and 
 (b)    the amount is incurred wholly, exclusively and necessarily in the performance of the duties of the employment…”.
I should record that I believe that this is the first Special Commissioners’ appeal to turn on legislation resulting from the Rewrite project.  Unfortunately it is not a good test of the benefits of the Rewrite because the familiar terminology of wholly, exclusive and necessarily has, for obvious reasons, been retained.
5.	The Appellant contends that:
(1)	She was asked about the training in the interview for the job and she considered that she would not have been offered the post if she had said that she was not prepared to do it.  The reason why the training was expressed as an expectation rather than as a term of the contract is that it is provided by an outside body and the Trust could not insist on it as they do not control admission to the training.  She had been refused admission to the training on a previous occasion.
(2)	Snowdon v Charnock [2001] STC (SCD) 152 was distinguishable on the ground that the taxpayer was a registrar and was training to become a consultant, so that it was a case of obtaining an additional qualification in order to perform the job better.  She was already a consultant and so this did not apply.
(3)	The Revenue have been inconsistent as they have allowed her and other doctors similar deductions in the past.
6.	Mr Hughes contends:
(1)	As the Appellant stated in a letter that “I work part-time and intend to start a private practice in my unpaid hours.  The [external] training is also intended to prepare me for this,” she had a dual purpose for the expenditure which was accordingly not incurred wholly and exclusively in the employment.
(2)	The expenditure was not necessarily incurred since it was not a condition of her employment.
(3)	The expenditure was not incurred in the performance of the duties of the employment. The Appellant’s position was identical to Snowdon v Charnock in which a specialist registrar in psychotherapy was refused a deduction for the 50% of the cost of personal psychotherapy that he was obliged to undergo as a condition of his contract.  Dr Brice decided:
“17….The personal psychotherapy sessions were for the purpose of enabling him to acquire his additional qualification in psychotherapy and were not in the performance of his duties. When he was undergoing the personal psychotherapy sessions, he was not performing the duties under his contract of employment. Applying the principle in Fitzpatrick v IRC (No 2) [1994] STC 237, [1994] 1 WLR 306 the nature of the job did not require the personal psychotherapy sessions which merely enabled the taxpayer to acquire the necessary qualifications to do the job or to do it better.”
(4)	While the Appellant has been allowed a deduction for similar expenditure in the past under the self-assessment “process now, check later” regime and in one year after only a cursory enquiry, this cannot create a precedent.  The Tribunal cannot take into account the treatment of other taxpayers whose affairs are not under appeal.
Reasons for the decision
7.	The test for deduction of expenses by an employee is notoriously strict.  First, the employee must be obliged to incur and pay the expense as holder of the employer, and secondly, it must be incurred wholly, exclusively and necessarily in the performance of the duties of the employment 
8.	On the first limb, that “the employee is obliged to incur and pay it as holder of the employment,” I have found as a fact that there was no contractual term obliging the Appellant to incur the expenditure, although I accept that she might well not have been engaged if she had said at her interview that she did not intend to undergo the training in question.  The highest it can be put is that the expenditure was on “desirable” training, as stated in the job description.  On the other hand, some expenditure on CDP is a requirement of the contract because indirectly if she did not incur it she would not remain a MRCPsyc and would not continue to hold an essential qualification for the post.  Accordingly she was obliged to pay some part of the expense.
9.	On the second limb I shall start at the end, that the expenditure must be incurred “in the performance of the duties of the employment.”  This is an separate test from the wholly, exclusively and necessarily part and is unrelated to whether the expenditure is required to be expended under the contract.  The law reports over a long period are full of examples of the problems of this part of the test.  Most recently in Fitzpatrick v IRC (No.2) [1994] STC 237 the House of Lords decided, contrary to a finding of fact in the English case under appeal, that a journalist does not read newspapers in the performance of his duties, but does so in order to be able to perform his duties to the highest possible standard.  This is near the borderline as is demonstrated by Lord Browne-Wilkinson’s dissenting speech in which he regarded himself bound by the Commissioners’ finding of fact in the English case that a sub-editor must know what other papers are doing about a particular news item and so reading other papers was more than merely preparatory to his duties.  Much earlier, the County Medical Officer in Simpson v Tate 9 TC 314 did not incur expenditure in joining the Royal Society of Medicine and other medical societies in the performance of his duties but to keep up to date so as to qualify himself to continue to hold that office.  In relation to training expenditure, the student assistant employed in the research laboratory in Blackwell v Mills 26 TC 468 was not performing the duties of his office when listening to the lectures at the Chelsea Polytechnic that he was contractually required to attend.  Nor was the headmaster in Humbles v Brooks 40 TC 500 performing his duties when attending weekend lectures to improve his background knowledge of history which was a subject he was required to teach.  Even closer to the facts of this case is Snowdon v Charnock [2001] STC (SCD) 152 where the psychiatric registrar was not performing the duties of his employment when attending courses on psychotherapy that he was contractually required to attend.  The principle to be derived from the authorities is that there is a distinction between the nature of the job requiring the incurring of the expenditure, and the expenditure enabling the person to do the job better (or at all, in the case of travelling expenses).  It is at first sight difficult to think of how the former could be satisfied in relation to training expenditure but the Revenue’s Manual at EIM 32545 gives such an example:
“A scientist is employed by a University department to carry out basic research in polymer chemistry. As part of her continuing research she attends a presentation at a different university of the findings of a scientist working in the same field. She is required to attend such presentations as part of the programme of research for which she is employed. The subject matter of the presentation directly influences the content and direction of her own research. 
The duties of this employment include research. In this case attendance at the presentation is an integral part of the research process and so is one of the duties of the employment. The costs of travel to the presentation are deductible.”
I agree that this appears to qualify, and the same would apply to any fee for attending the presentation.  
10.	The Appellant sought to distinguish Snowdon on the basis that there the taxpayer was obtaining qualifications that would enable him to be better qualified to do his job and ultimate to become a consultant.  Here, the Appellant is already a consultant and so it is not a question of obtaining a further qualification.  That is true but I agree with Mr Hughes that the distinction is irrelevant to the question whether the expenditure in this appeal was incurred in the performance of the duties of her employment.  The Appellant’s job description states that she is encouraged to pursue research interests and so it is close to the example on the Manual but in incurring the expenditure on the training in question she was not conducting her own research.  Like the doctor in Simpson v Tate, the Appellant is very properly qualifying herself in order to continue to hold the employment and, like the psychiatrist in Snowdon, when she was undergoing the personal psychotherapy sessions and other training, she was not performing any duties under her contract of employment.  This applies just as much to the expenditure required to meet the minimum CPD requirement as to the rest of the expenditure.
11.	I find therefore that the expenditure was not incurred in the performance of the duties of the employment.  
12.	If I had found that the expenditure was incurred in the performance of the duties of the employment, which I have not, it would have been necessary to consider the wholly, exclusively and necessarily part of the second limb.  So far as wholly and exclusively is concerned, the letter quoted in paragraph 6(1) seems to me to be an unguarded statement which having heard the Appellant’s evidence I have not found to be a correct statement of her purpose in incurring the expenditure.  She was still at the time of the hearing undecided about undertaking private practice, although she has been free to do so since taking up this part-time post.  She was still undecided after she had finished the training, which in any case is not a requisite for private practice.  Accordingly if I had found the expenditure to have been incurred in the performance of the duties of the employment I would have found the expenditure was wholly and exclusively so incurred.
13.	So far as relates to necessarily incurred, I find that the expenditure was not necessarily incurred by virtue of the nature of the job.  At the highest it led to a qualification that the job description listed as desirable.  On the other hand, to the extent that the expenditure was required to satisfy the CPD requirement which any holder of the job would need to satisfy, if I had found that it was incurred in the performance of the duties of the employment, which I have not, I would have found that that part was necessarily incurred.
14.	On the Appellant’s contention that the Revenue have not been consistent, my duty is to decide this appeal relating to this particular year.  If she has (or other doctors have) been allowed a deduction for similar expenditure for an earlier year then she (or they) may have been fortunate.  I cannot take into account what may have been an incorrect treatment of the Appellant in a different year or of other taxpayers, the facts of which I do not know, in deciding this appeal.
15.	Accordingly I dismiss the appeal.  I should add that if NHS Trusts are so short of funds that doctors are now being encouraged to pay this type of training themselves (in Snowdon, relating to 1998-99, half was then paid by the employer trust; by 2003-04 to which this appeal relates, no part was paid by the Trust) there might be scope for discussions between the Royal College of Psychiatrists and the Department of Health about whether this could be arranged more tax efficiently.

JOHN F. AVERY JONES

SPECIAL COMMISSIONER
RELEASE DATE: 19 July 2006

SC 3069/06

Authorities referred to in skeletons and not referred to in the decision:
Lomax v Newton 34 TC 558
Elderkin v Hindmarsh 60 TC 651
Silva v Charnock [2002] STC (SCD) 426

££Consultant Psychiatrist v  Revenue & Customs [2006] UKSPC SPC00557 (19 July 2006)