Actor loses tax relief claim as rented London flat was not 'exclusively' for work

The actor Tim Healy has lost his claim for tax relief on a flat he rented while working away from home.

Healy, who lives in Cheshire, was cast in the West End musical Billy Elliott for nine months during the 2005-06 tax year. He decided to rent a flat in London for the period. The GBP875 weekly cost of renting the flat was comparable to that of staying in a hotel or similar accommodation, and also allowed him extra room for practice and coaching. He never intended to make London his home.

He claimed the cost of the rental against his income for that year, as a necessary part of his expenses.

However, HM Revenue & Customs disallowed the claim, on the basis that the long rental term – up to a year – represented a private living cost rather than a cost of doing business.

Healy first appealed to the First-tier Tax Tribunal (FTT) in April 2012, where he won. The tribunal agreed that he had not moved house and so his expenses were wholly and exclusively work-related, in accordance with the Income Tax (Trading and Other Income) Act 2005, s34(1)(a). Accordingly he was granted relief on all his accommodation costs.

HMRC in turn appealed to the Upper Tax Tribunal which, in August 2013, ruled that the lower tribunal had applied the wrong test. The case was sent back to the FTT for reconsideration, with the instruction that Healy's intentions at the time of entering into the tenancy agreement should be examined.

The First-tier Tax Tribunal has now given its second judgment on the case. This time, it took special account of the fact that Healy admitted in his evidence that part of his reason for renting a flat was that he wanted space for guests. This, said the FTT, meant that the flat rental was not wholly and exclusively incurred for the purpose of his business. The fact that the flat cost no more than a hotel was irrelevant to this duality of purpose. Nor could the non-business use of the flat be apportioned. It thus ruled against him and disallowed the claim (Healy v HMRC, 2015 UKFTT 233 TC).

However, the decision leaves room for similar claims to succeed in cases where such an admission is not made.

This is especially true in view of the Upper Tax Tribunal's comments in the Healy case that there is no reason why expenditure on rental accommodation is in a different position to hotel or club accommodation 'except in special cases'.

'Although a disappointment for the taxpayer, this case is highly significant for self-employed taxpayers who go away on business', commented tax consultant Nichola Ross Martin.

Sources

• BAILII
• Ross Martin Tax Consultancy