Relying on HMRC Misinformation

Louise Stones, a self-employed radio presenter for Signal 1 based in Stoke on Trent, won a part victory at the First Tier Tax Tribunal when it was ruled that she should be allowed to claim certain expenses, that ordinarily were not tax relievable, due to her having received wrong information from HMRC.

Following an aspect enquiry in May 2008, HMRC amended Miss Stones 2007, 2008 and 2009 self-assessment tax returns to disallow expenses claimed for use of home as office, wardrobe costs (clothing, cosmetics, hairdressing and accessories) and travel/subsistence. 

The taxpayer appealed on the basis that she had been misdirected by HMRC when completing her tax returns. In a letter to the Tribunal she stated, “My case is not to depict whether or not my claimed 'items' are said to be for sole work purpose. This bares no relevance to the issue at hand. My case is very simple – I sort instruction from HMRC. I was misinformed. I followed HMRC Charter, yet I am being persecuted? The issues at hand lie with the misinformant not myself. At every stage, I have initiated and sort precise instruction from the HMRC. I complied at all times to both their instruction and charter.”

Contested expenses

Premises

Miss Stones used one room in her home as an office in connection with her business. HMRC did not dispute that the taxpayer had been advised by one of their officers that she could take all the costs of running her home, such as mortgage interest, utility bills and insurance and divide them by four to reflect the number of the rooms in the house.

Wardrobe costs

The wardrobe costs appeared to be everyday clothing and cosmetics. Stones stated that they were purchased for outside broadcasts and other events where she was in the public eye. Signal 1's Presenter Manual directed presenters to “Look like a 'Star' – be smartly dressed and branded if possible” when doing outside broadcasts.

Travel/Subsistence

Stones lived some 5 miles from the radio station and relied on taxis to get there from her home (business base) when she had to leave at 4:30 in the morning. These costs were allowed by HMRC but only for 2006/07 and on a concessionary basis. What was at issue was the expenditure on food and drink.

The radio presenter became self-employed in 2001. In 2003 she had to complete her first self-assessment tax return and sought advice from HMRC's business support team.  During a number of meetings with two different HMRC officers Stones was told that she could claim wardrobe costs in circumstances where she was appearing in public, i.e. promotional appearances, visits to local schools and charities, and outside broadcasts.

One of the officers said that in 2004 he operated what was known as “the fives rule”. Namely the cost of subsistence was allowable if the taxpayer was more than 5 miles from their normal place of work for more than 5 hours and up to £5. This was analogous to employees in the civil service.

The Tribunal found that HMRC had given Miss Stones misleading advice about wardrobe costs and subsistence expenses and she was therefore entitled to rely on that advice in the completion of her 2007 tax return. With regard to future years returns however, Miss Stones was made aware that these expenses were not tax deductible during the course of HMRC's enquiry that was in full swing from 2008.

Taxpayers, therefore, that rely on HMRC advice to complete returns, calculate tax liabilities etc should always maintain contemporaneous notes of the Revenue officers name, nature of the advice given, date and circumstances under which such advice was given, i.e. meeting or telephone conversation. Should a dispute with HMRC ever arise therefore you will have irrefutable evidence which can be relied upon.