In the case of Kunjur v HMRC [2023], the UT overturned a decision of the First-tier Tribunal (FTT), holding that a surgeon's expenses for renting accommodation during training placement away from home were not eligible for tax deduction.
Mr Kunjur, a trainee maxillo-facial surgeon participated in a four-year surgical training placement in London. Mr Kunjur lived with his family in Southampton and rented accommodation near to the hospital where he worked. Mr Kunjur claimed relief for that expenditure but HMRC rejected this. Mr Kunjar brought a challenge to this in the FTT. The FTT held that a proportion of Mr Kunjur's expenditure was eligible for relief by reference to the amount of time he spent at the premises performing some of the duties of his employment. HMRC appealed.
To qualify for tax deductions, an employee must meet two conditions as outlined in section 336 of the Income Tax (Earnings and Pensions) Act 2003 (ITEPA). First, the employee must be obliged to incur the expense as a requirement of their employment. Second, the expense must be incurred wholly, exclusively, and necessarily in the performance of their employment duties.
The UT underlined that the test is objective and should consider whether all employees in a similar role would be obliged to incur the same expense. Mr Kunjur was required to respond to call outs at the hospital within 30 minutes, and the FTT considered Mr Kunjur could not be expected to live in student accommodation near the hospital, or uproot his family. In the circumstances, it therefore decided that the expenditure was necessary. The UT, however, determined that the expenditure was a matter of choice arising from his personal circumstances (i.e. his family home remaining in Southampton), and that not all doctors employed in the same role would be obliged to incur expenditure of that nature. They may, for example, live close enough to the hospital in question.
The UT also rejected the FTT's approach of apportioning Mr Kunjur's expenditure (which had a dual purpose) in order to apply the 'wholly and exclusively' aspect of the section 336 test to his use of accommodation in performance of the duties of employment.
It comes as no surprise that HMRC appealed the FTT's decision in this case, given the strict application of the section 336 test to date. This decision underlines the objective nature of the requirement to incur expense, and emphasises that the expenditure must be directly linked to the performance of employment duties. Employees should be aware that expenditure must meet the very strictly applied and interpreted conditions to be tax-deductible.