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Kunjur: no magic access to tax relief

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The case of Jayanth Kunjur (Kunjur v HMRC [2021] UKFTT 362 (TC), reported in Tax Journal, 30 October 2021) is on the old problem of tax relief for employees working away from home. The law is tough but clear. But the case has some notable features.

Mr Kunjur was a dentist who lived and worked in Southampton. He wanted to become a maxillofacial surgeon. To do so it was necessary for him to take up employment in London for a period of four years from October 2012 to October 2016.

Daily travel between Southampton and London was not practicable, as it would have made for a 17½ hour working day. In any event, for the times when he was ‘on-call’, Mr Kunjur needed to be within 30 minutes of the hospital.

Consequently Mr Kunjur rented ‘modest accommodation’ in Colliers Wood and stayed there during the week (and for the one weekend in six when he was on call). His family remained in Southampton.

When he filed his tax returns for the relevant years, Mr Kunjur, on the advice of his accountants, claimed tax relief for the costs, which totalled nearly £40,000 over the period.

There were a number of reasons the costs could not qualify for relief under the rules on ‘travelling expenses’, the most basic of which was that duration of the period of work in London was longer than permitted under the rules. So the only route to relief was if they were incurred ‘wholly, exclusively and necessarily in the performance of the duties of the employment’.

That is an extremely rigorous test. The key words are ‘necessarily’ and ‘in’. The first limits relief to expenses that are a requirement of the work in the sense that each and every person doing the work would inevitably be obliged to incur those same expenses (or, at least, expenses of that kind). The second, to expenses that are incurred while actually carrying out the work (as distinct from putting oneself in a position to do it).

Looked at that way, Mr Kunjur’s claim was hopeless.

Nonetheless, the tribunal did find in part in his favour, holding that the test was met in relation to a proportion of the expenditure, that proportion being determined ‘by reference to the amount of time Mr Kunjur spent giving advice from the accommodation while on informal and formal on-call’. Unfortunately for Mr Kunjur, it is difficult to see how that decision could be upheld should HMRC appeal.

On penalties, Mr Kunjur was more fortunate: and rightly so.

HMRC took the view that in claiming the relief (on the advice of his accountant, remember) Mr Kunjur had failed to take reasonable care and had therefore exposed himself to liability to penalties. He should, HMRC said, have consulted HMRC guidance which would have made clear the error of his ways.

Happily, and completely correctly, the tribunal was having none of it. The statutory test was, in the tribunal’s view, ‘a particularly difficult one’ (hard to disagree with that, since the tribunal itself got it wrong!) and ‘counter intuitive’: Mr Kunjur was entitled to rely on advice from his advisers and was not obliged to check that advice.

But there’s a footnote to this case which might cast doubt upon the wisdom of relying on HMRC as self-styled paragons of accuracy.

Readers will recall that accommodation costs amounted to a little under £40,000. The tax at stake is likely to have been no more than £16,000.

The maximum penalty for a careless error is 30% of the tax at stake, and in practice it will usually be much less than this – typically 15%-20%. Yet the penalties that HMRC was seeking to charge amounted to over £7,500. It looks as if HMRC had calculated penalties as a percentage of the expense rather than of the tax: a pretty basic error that, apparently, no-one at HMRC spotted (or, even worse, that someone at HMRC spotted but failed to correct). Poor show. 

Issue: 1552
Categories: In brief