Despite the stereotype, the tax world can be really interesting at times. I know what you are thinking, but what if I said there is a tax case involving an “exotic dancer” who worked at Stringfellows? The case of Gemma Daniels is interesting for various reasons. Firstly, there is the thought of a tax tribunal judge having to use expressions such as “see-through and skimpy”, “6 to 10-inch stiletto heels” and “danced naked” in their decision. However, what really grabbed my attention were the tax issues raised.
The Daniels case was focused on if expenses were deductible for tax purposes. There were two main costs under the spotlight – travel expenses and the clothing and beauty expenses associated with the trade. HMRC had raised assessment for four tax years and had issued penalties on top. The total tax bill at stake was in excess of £10,000.
Before looking at detail of HMRC and Ms Daniels’ arguments, we should first look at what the tax law states. The relevant provisions say that an expense can only be claimed if it is incurred “wholly and exclusively for the purposes of the trade”. This means that if there is any personal reason for incurring the expenditure it is either partially or fully disallowed. On top of the statutes, there is case law that will impact the decision of the tribunal, i.e. previous cases in higher courts that have been considered previously and set a precedent for future cases discussing the similar issues.
In the assessment of the travel costs, this was straight-forward. The courts agreed with HMRC that the travel from Ms Daniels’ home to Stringfellows was travel to her regular place of business and accordingly was not deductible. This has been well established in the courts now. Although you might write-up your accounting records, take the odd call, answer emails and even rehearse at home, if you are going to the same place to perform work week-in, week-out, this would not be wholly and exclusively for the trade (it has the personal element of going from where you choose to live to where you perform the work).
Ms Daniels’ had worked at the same central London venue for over nine years. Had she had more of a varying routine, i.e. travelled to different venues, this would potentially have meant the only fixed place of business was her home and these trips would be tax deductible. However, please note that you can still be deemed to have more than one regular place of business. Indeed, a previous case found a doctor was not allowed to claim travel between his home and two separate private hospitals as his routine meant he was visiting the hospitals regularly and both were deemed places of business.
The really interesting aspect of the case related to the other costs claimed. Ms Daniels’ had claimed various costs that were very specific to her trade, namely clothing, lingerie, make-up, perfume, beauty treatments and hairdressing (including hair extensions). HMRC’s arguments focused on a famous case (at least famous for tax advisors), Mallalieu v Drummond, involving a barrister who had claimed the costs of her clothing she wore solely for court appearances. The case was lost by Ms Mallalieu as the House of Lords found the clothing served a personal purpose, that of “protecting her warmth and decency”, so was not wholly and exclusive for the trade.
In the case of Ms Daniels, HMRC’s argument was the Mallalieu decision implied that any clothing that could be worn outside of work had a duality of purpose. (Naturally, they did not attempt to argue an exotic dancer needed the clothing for “warmth or decency”.) This contradicted HMRC’s own policy that accepts that costumes (for TV, film and the stage) are not regarded as a taxpayer’s “everyday wardrobe” and are tax deductible. Indeed, HMRC had been willing to accept 20% of the clothing expenses on this basis in the case of Ms Daniels. Ultimately, the judge was quick to dismiss HMRC’s argument. Of course, at home you could choose to wear the Tudor ruff you once wore when playing Shakespeare, but that should not disallow a claim of that expense.
For the other expenses, the judge was happy to allow the deductions. Some of these decisions were more surprising that others. The make-up was simple – she wore heavy make-up only suitable for performances and would always remove this at the end of shift. The perfume was interesting, but Ms Daniels said she did not like to wear the same perfume as when she performed as she did not want to be reminded of her day-job. It should be added here that Ms Daniels has since stopped dancing and has left the profession after she “developed a distaste for her exotic dancing career”. I believe this helped convince the judge there was a clear separation of her professional and private lives.
The beauty treatments, i.e. fake tans and manicures, and the hairdressing were more contentious. The issue with these aspects is that they cannot be readily removed/reversed after each shift. Therefore, whether the intention or not, there is a potential personal benefit (i.e. you could argue she looked better in her personal life too, although I would say this is subjective). This is the point in Mallalieu – the clothes being worn for “warmth and decency” might not have been the conscious objective of Ms Mallalieu, but it was her subconscious objective. In the case of Ms Daniels, the judge deemed that the sole objective (conscious or subconscious) of incurring these costs was to improve her image for her trade alone and she would not have paid for them otherwise. Again, I believe Ms Daniels subsequent departure from the profession helped as she could demonstrate she no longer paid for such treatments.
Why does this case matter? Well, with media and entertainment clients you often have cost that fall into the grey areas demonstrated here. Using the logic in this case, what should matter is the objective and purpose when incurring the expense. A regular claim we see attempted is gym fees. It should be clear the potential personal benefit of going to the gym – the person becomes healthier. However, if the sole objective is for trade, there might be some merit in making the claim. For example, an actor is asked to “get buff” for a role, so he hits the gym. Of course, he might enjoy a personal benefit in his added health and looking better (again, this is subjective), but as long as he lets the gym membership lapse once he finishes the role, HMRC should accept the claim.
More lasting improvements are more problematic. For example, what if Ms Daniels had had cosmetic surgery to improve her image for her job? This certainly could not be easily removed after she left that career. However, HMRC will accept a claim if it is solely for the purpose of the business. Indeed, they give the following example in their manuals:
“A radio performer of many years’ experience starts to do TV work. She is advised that her irregular teeth are holding back her TV work. She has cosmetic dentistry to give her a perfect smile. It is established as fact that she had been content with her appearance and the TV work was the sole reason for the dentistry. The cost is allowable.”
How you prove as a “fact” your sole objective before an expense seems somewhat difficult, but it does show there is potential for some surprising claims.
The Daniels case illustrates it is never black or white with business expenses. If there is any doubt, it would be best to consult with an accountant who understands the industry and who can guide you. Plus, they might be able to tell you some of the other interesting tax cases. I mean, this is not even the first time Stringfellows have been in the courts for tax purposes, but that’s another story for another day.
If you want to discuss any of the above, or any other matter, just give us a call on 020 7183 3383 or email info@kma-spotlight.com.
