25 May 2022

Justine Riccomini FFTAAIPA Chartered MCIPD ChFCIPP, head of taxation at the Institute of Chartered Accountants of Scotland (ICAS) provides detail of how a mature student claimed a deduction on living accommodation expenses which ostensibly failed the ‘wholly, exclusively and necessarily’ test


An interesting case came out of the Tax Chamber last October, which concerns itself with the nature of expenses claims incurred while in employment, and whether they’re ultimately tax-deductible or not.

The decision, issued from the first tier tribunal (FTT) in October 2021, reminds us that the qualifying criteria for employment-related expenses are that the expense must be ‘wholly, exclusively and necessarily’ incurred in the proper performance of the employee’s duties. This is in accordance with Section 336 of the Income Tax (Earnings and Pensions) Act (ITEPA) 2003. In this case, the employee managed to obtain tax relief for part of the accommodation costs he incurred in south London, which was an extremely unusual outcome, and was based on a specific fact pattern.



To fulfil his ambition of becoming a maxillofacial surgeon, Mr Kunjur needed to undertake a four-year full-time training contract. Having located a suitable contract in south London, Mr Kunjur, who was a dental surgeon residing in Southampton with his family, accepted the post, which was the only one available at that time. The contract also required Mr Kunjur to carry out occasional duties at another nearby south London hospital, as well as regular night duties, and to be within 30 minutes of the hospital if on call. Mr Kunjur was faced with a daily commute to south London from Southampton. It soon became obvious the travelling time became too much when added to the pressure of the work, training and the night duty element of the role. Mr Kunjur was concerned he might not be able to discharge his duties properly, which could lead to undesirable outcomes, such as a negligence claim from a patient.

Even though the possibility of employer-funded hospital accommodation and self-funded ad-hoc hotel accommodation might have been options, Mr Kunjur decided the best option for him, as a mature student, was to take a modestly priced apartment nearby. He could leave his belongings and study materials there and be alone to study in peace from Monday to Friday. He returned home at weekends.

Mr Kunjur made a claim for a deduction on his tax return relating to the living accommodation expenses (note: his travelling expenses wouldn’t have qualified due to the permanent workplace rules). This was denied by Her Majesty’s Revenue and Customs (HMRC), who also imposed a penalty for the negligent completion of a tax return.


Square peg, round hole

Despite HMRC’s plea that none of the tests were met (that the employee incurred the expenses ‘wholly, exclusively and necessarily’ in the proper performance of his duties and that he was obliged to incur and pay them), the FTT concluded Mr Kunjur was on call during his training contract. Therefore, he was required to live at or near the hospital. The strict term ‘wholly, exclusively and necessarily’ was discussed years ago, in Lomax (HMIT) v Newton (1953), when Vaisey J commented: “An expenditure may be ‘necessary’ for the holder of an office without being necessary to him in the performance of the duties of that office; it may be necessary in the performance of those duties without being exclusively referable to those duties; it may perhaps be both necessarily and exclusively, but still not wholly so referable. The words are indeed stringent and exacting; compliance with each and every one of them is obligatory if the benefit of the rule is to be claimed successfully.”

The decisions made by the FTT are unusual in the context of the ‘wholly, exclusively and necessarily’ requirements. The wholly and exclusively tests would appear not to have been met by virtue of Mr Kunjur deciding independently of the hospital that he would rent an apartment in Collier’s Wood. This wasn’t an objective requirement of his work, but a personal choice which put him in a position to carry out his duties. There was a requirement by his employer to be on call and to be within 30 minutes of the hospital during those times, but Mr Kunjur had initially tried to carry out the role by remaining in his home in Southampton. Renting that particular flat in that particular location wasn’t the thing which enabled him to actually carry out those duties day to day.

The FTT nevertheless considered that, although Mr Kunjur’s use of the flat had some mixed-use purpose to it (which fails the wholly and exclusively tests), the primary purpose was work and study related. Together, they were deemed to be ‘in performance of’ his employment duties. The fact he was on call while living in the flat influenced the decision heavily. So did the fact that members of his family didn’t visit the premises whenever he was staying there, or at weekends, for the duration of the lease.

However, the fact remains that the premises could have been used for a private purpose to a much greater extent if Mr Kunjur had been so inclined. The property was let exclusively to Mr Kunjur and was thus available to him to use privately, whether he did or not.

The tribunal also unusually chose to examine the scenario for a self-employed person. This was possibly influenced by the fact Mr Kunjur had paid the costs of the living accommodation himself and was claiming tax relief on them. The legislation at Income Tax (Trading and Other Income) Act 2005 allows for an apportionment to be made between private and business expenses. It appears the FTT went on to direct HMRC and Mr Kunjur to decide between themselves on how the private use apportionment of the costs should be sensibly calculated based on this legislation. This is nothing to do with employment tax legislation (under which Mr Kunjur’s student contract could be said to be governed).


Penalties: dismissed

The tribunal also considered that the penalties should be wholly dismissed because the taxpayer had relied upon his accountants to get his tax return right – which is probably the right outcome. Several other case decisions have reached the same conclusion. Mr Kunjur’s claim was made based on advice received from his accountants and was also completed by them.

Was the right decision reached? In an employment tax related case it’s not usually tax tribunal’s practice to consider non-employment tax related tax legislation, as happened with the expenses here. It may well have seemed equitable to allow for part of the expenses because Mr Kunjur carried out some of the work he was contracted to do at the flat. However, the fact remains that the expenses were not ‘wholly, exclusively and necessarily’ incurred under the strict employment tax tests set down in law under Section 62 of ITEPA 2003.



This is a surprising outcome, and it wouldn’t be advisable to rely on it – the fact it’s an FTT decision also means it hasn’t set any precedents. It’s likely HMRC will allow it to go unchallenged without bothering to appeal, due to the small amount the taxpayer is due to receive back. On the other hand, HMRC may consider that if a substantial amount of similar claims are likely to be made by other taxpayers on their tax returns because of this decision, it could be necessary to attempt to have the decision overturned, as a deterrent. 


Featured in the June 2022 issue of Professional in Payroll, Pensions and Reward. Correct at time of publication.