1986 PLP 5 (PTD)

The tax‑payer bought clothes in conformity with those requirements. The initial cost of purchase was a capital expense, and therefore not material for present purposes. However, she needed to clean and renew them from time to time and to the accounting period for the 19-17‑78 year of assessment she spent some 500 on replacements, laundering and Cleaning. This sum is claimed as a deduction in computing the profits of her practice chargeable under Sch. D. To qualify as a deduction, the expenditure must fall outside the prohibition contained in section 130 of the Income and Corporation Taxes Act, 1970. The relevant paragraph of the section is para. (a) but para. (b) should perhaps be read with it as was referred to in argument:

130. Subject to the provisions of the Tax Acts, in computing the amount of the profits or gains to be charged under Case I or Case II of Schedule D, no sum shall be deduced in respect of (a) any disbursements, or expenses, not being motley wholly and exclusively, lain out or expended for the purposes of the trade, profession or vocation, (b) any disbursements or expenses of maintenance of the parties, their families or establishments, or any sums expended for any other domestic or private purposes distinct from the purposes of the trade, profession or vocation . . . . The effect of para. (a) is to exclude, as a deduction, the money spent by the tax‑payer unless she can establish that such money was spent exclu sively for the purposes of her profession. The words in the paragraph 'expended for tire purposes of the trade, profession or vocation' mean in my, opinion 'expended to serve the purposes of the trade profession or vocation, or as elaborated by Lord Davey in strong and Co. of Romsey Ltd. v. Woodifield (Swveyor of Tapes) ((1906) A C 448 at 453 ; (19(14‑7) All E R Rep 953 at 956) for the purpose of enabling a person to carry on and earn profits in the Trade & Company'. The particular words emphasised do not refer to 'the purposes' of the tax‑payer, as some of the cases appear to suggest. They refer to 'the purposes' of the business, which is a different concept although the 'purposes' (i. e. the intentions or objects) of the tax‑payer are fundamental to the application of the paragraph. The effect of the word 'exclusively' is to preclude a deduction if it appears that the expenditure was not only to serve the purposes of the trade, profession or vocation of the tax‑payer but also to serve some other purposes. Such other purposes, if found to exist, will usually be the private purposes of the tax-payer see for example Prince v. Mapp (Inspector of Taxes) ((1970) 1 All E R 519, (1970) 1 W L R 260). To ascertain whether the money was expended to serve the pur poses of the tax‑payer's business it is necessary to discover the tax‑payer's `object' in m4king the expenditure: see Morgan (Inspector of Taxes) v. Tate and Lyle Ltd. ((1954) 2 All E R 413 at 416, 423; (1955) A C 21 at 37, 47'). As the, tax‑payers 'object' in making the expenditure has to be found, it inevitably follows that (save' to obvious cases which speak for themselves) the General Commissioners need to look into the tax‑payer's mind at the moment when the expenditure is made. After events are irrelevant to the application of section 130 except as a reflection of this tax‑payer's state of mind at the time of the expenditure. If it appear, that the object of the tax‑payer at the time of the expendi ture was to serve two purposes, the purposes of his business and' other purposes, it is immaterial to the application of section 130 (a) that the business purposes are the predominant purposes intended to be served. The object of the tax‑payer in making the expenditure must be distinguished from the effect of the expenditure. An expenditure may be made exclusively to serve the purposes of the business, but it may have a private advantage. The existence of that private advantage does not necessarily preclude the exclusivity of the business purposes. For example a medical consultant has a friend in the South of France who is also his, patent. He flies to the South of France foe a week staying in the home of his friend and attending professionally on him. He seeks to recover the cost of his air fare. The question of fact will be whether the journey was undert4ken solely to serve the purposes of the medical practice. This will be judged in the light of the tax‑payers object in making the journey. The question will be answered by considering whether the stay in the South of France was a reason, however subordinate, for undertaking the journey, or was not a reason but only the effect. If a week's stay on the Riviera was not an object of the consultant, if the consultant's only object was to attend on his patient, his stay on the, Riviera was an unavoidable effect of the expenditure on the journey and the expenditure lies outside the prohibition in section

130. There is no dispute between the parties as to the true meaning of section 130 (a), and it is common ground that the principles, which I have outlined are those which fall to be applied. The appeal before your Lordships is basically concerned with .the distinction between object and effect. The Inspector of Taxes disallowed the deduction claimed by the tax‑payer, with the result that she appealed to the General Commissioners against the assessment made on her. The General Commissioners, who had themselves been in practice at the Bar, confirmed the assessment subject to a small adjustment on which there was agreement. The tax‑payer success fully appealed to the High Court, and the decision of the Chancery' Judge was upheld on appeal. The Inspector of Taxes now appeals to this House with the leave of your Lordships. The primary facts found by the General Commissioners are contained in para. 4 of the printed case and para. 8 of the decision (see (1981) S T C 371 at 392‑395). The clothes which the tax‑payer maintained for profes sional purposes were, broadly speaking, worn by her only in connection with her work. That is to say, she travelled iii them to her chambers or directly to Court, wore them throughout the day and changed out of them when she arrived home at the end of her working day. There were odd occasions on which the tax‑payer might find it convenient to remain in her working clothes after her work was done. But no point is taken by Revenue in relation to such occasions nor is any point taken that the clothes were worn not only at work but also when travelling to and from work. The critical findings of fact as set out in paras. 4 and 8 of the case are these ((1981) S T C 391 at 393, 395) 4

(c) The rules for guidance are

normally complied with and it would be virtually impossible for a lady barrister to practice unless she complied with the rules laid down

(f) At all material times the tax-prayer had a private wardrobe of clothes and shoes which was amply to keep her clothed and shod in comfort and decency, without having to resort to any of the disputed items. Site would not have purchased any of the disputed items had it not been for the requirements of her profession that she would comply with the notes for guidance when appearing in Court

(j)

She bought such items only because she would not have been permitted to appear in Court if she did not wear, when in Court, them or other clothes like them. Similarly the preservation of warmth and decency was not a consideration, which crossed her mind when she bought the disputed items. (k) The white blouses and black clothing bought by the tax‑payer were items of ordinary civilian clothing readily available for purchase by anyone at many clothing stores.

8. We consider that the evidence shows that when she bought the clothes she bought them to wear in Court and that she would not have bought them but for the exigencies of hit profession. In addition there are certain statements in a proof of evidence of a senior executive of Marks and Spencer Ltd. These were accepted by the tax‑payer as accurate statements of fact. They are‑summarised in the com missioners' decision in the following terms : (i) that it is important for a major retail outlet to design garments likely to have a broad popular appeal, (ii) that the colours in which garments are produced must necessarily be what are called "safe" colours, including black, (iii) that a black velvet jacket is a perennial favourite, and (iv) that black clothing is always acceptable whether it is a fashion colour or not and always represents a proportion (which he put at over 10%) of sales to ladies' outerwear. I refer to this evidence only to emphasise the point that the clothing in question consists of perfectly ordinary articles of apparel, which many ladies wear from choice. On the basis of those findings of fact the commissioners had to draw an inference and decide whether or not the tax‑payer had expended money on her professional wardrobe exclusively to serve the purposes of her business, or alternatively to serve both purposes of her business and her own private purposes. The inference drawn by the com missioners and the determination reached by them ‑are contained in the second part of para. 9 of their Written decision, which reads as follows ((1981) S T C 391 at 395): "We consider, in the present case, that when (the tax‑payer) laid out money on clothes for wearing in Court her purpose in making that expenditure was to enable her to earn profits in her profession and also to enable her to be properly clothed during the time she was on her way to chambers or to Court and while she was thereafter engaged in her professional activity, and in the other circumstances indi cated in para.

2. We do not consider that the fact that her sole motive in choosing the particular clothes was to satisfy the requirements of her profession or that if she had been free to do so she would have worn clothes of a different style on such occasions altered the purpose of the expenditure which remained the purpose of purchasing clothes that would keep her warm and clad during the part of the day when she was pursuing her career as well as the purpose of helping her to earn profits in that career. We think therefore, that the expenditure had a dual purpose, one professional and one non‑professional

The commissioners accordingly concluded‑ that the tax‑payer had two objects in making the expenditure, to serve the purposes of her business, and to serve her own purposes by enabling her properly to be clothed. Since there is no appeal from the commissioners on a question of fact, the only question before your Lordships is whether the findings of primary fact were such as to entitle them to draw, that inference. It is, I think clear that Slade, J. was, to use his own words, 'driven to the conclusion that the relevant expenditure in the present case was incurred by her solely for the purpose of carrying on her profession because he took the view that the so‑called subjective approach to the application of section 130 (a) led‑inexorably to the conclusion that the conscious objects or reasons of the tax‑payer making the expenditure were decisive. (See (1981) S T C 391 at 406). Alt that mattered was what 'was actually in her conscious mind when the expenditure was made

it is common ground that, in determining whether these expenses have been wholly and exclusively laid out or expended for, the purpose of (the tax‑payer's) profession of a barrister, 'it is necessary to ascertain what purpose or purposes was or were in her mind at the date when they were incurred. . . The ‑ultimate question for my decision here will I think, be whether, having regard to their primary findings of fact as set out in para. 4 of the case stated, there was evidence to support the inference ultimately drawn by the commissioners that the expen diture was incurred by the tax‑payer with dual purposes in mind' (My emphasis). (See (1981) S T C 391 at 399, 400). As the tax‑payer according to the undisputed evidence had nothing in her mind except the etiquette of her profession on the several occasions when she spent money on the upkeep of her wardrobe of working clothes, and had no thought of warmth and decency', it inevitably followed that the money was spent exclusively to serve the purposes of her business, The provision of clothing as such it was held, was nothing more than an incidental, although no doubt welcome, effect of her one and only object. The approach of the Court of Appeal was similar. After summarising the General Com missioners' findings of fact, Sir John Donaldson M. R. continued ((1983) I All E R 801 at 806, (1983) 1 W L R 252 at 254: 'From those findings of fact there is in my judgment only one reasonable conclusion to be drawn, namely that the tax‑payer's sole purpose in incurring the expenditure was a professional purpose, any other benefit being purely incidental. Kerr L J reasoned along the same lines ((1983) 1 All E R 801 at 808, (1983) 1 WLR252at261): 'In the present case, as it seems to me the primary findings of Tact are wholly exceptional in the sense that they are conclusive in the tax‑payer's favour. In particular para. 4 (f) and (j) of the case stated and para. 8 of the decision (see (1981) S T C 391 at 393, 395) contain unqualified finding; to the effect that the tax‑payer's sole pur pose in incurring the expenditure for the clothes in question was that she had to have them, in order to exercise her profession and that she had no need for them nor any other purpose, when she acquired them . . . By‑these findings they have, in effect, stated themselves out of Court so far as any ultimate conclusion to the contrary is concerned. All that remains can only be incidental effect; there is no room for a conclusion that there was a dual purpose. The brief judgment of the late Sir Sebag Shaw was to the same effect, I think, with respect, that Kerr L J s paraphrase of paras. 4 (f) and (j) and 8 goes further than the findings warrant. The sense of the General Commissioners' finding of fact is that the tax‑payer did not have any object in her mind, that is to say, any conscious motive, when she incurred the expenditure, except that she needed the clothes in order to exercise her profession. Before I seek to examine the conclusions reached by the High Court and the Court of appeal, I return to my opening observations that the issue involved an this appeal has inevitably opened up a far wider and more fundamental point, namely the right of any Self‑employed person to main tain at the expense of his gross income and therefore partly at the expense of the general body of tax‑payers, a wardrobe of everyday clothes which are reserved for work. I find myself at odds with Slade, J when he says 'I accordingly emphasise that this is a decision on the particular faces of the present case' a remark which, though accurate, implies that there is some thing exceptional about the case (see (1981) S T C 391 at 407). In the first place, counsel for the tax‑payer disclaimed any reliance on the fact that his client disliked dark clothing, never purchased it for private use, and therefore was not in a position to resort to her private wardrobe to answer the requirements of her profession. This disclaimer was rightly made. 1t would be absurd to suppose that there exists one law or the blonde barrister who lacks a wardrobe of dark clothes, and another law for the brunette barrister whose wardrobe of everyday clothes contain many dresses suitable for Court appearances. It, therefore, inevitably followed, as counsel conceded that the tax‑payer was arguing that if a barrister, male or female, chose to establish a wardrobe of clothes exclu sively for working purposes, he or she would be entitled to deduct the cost of its upkeep. The question then arose whether this beneficent state of affairs would apply to other professional persons, such as solicitors, accountants, medical practitioners trades people and persons in all other walks of self‑employed life' and if not why not. The only distinction that could be drawn was that a barrister who wore unacceptable clothes would find himself barred from pleading in Court, as well as risking the loss of the goodwill of his clients, Mile other professional persons might be subject only to the latter sanction. It did not seem logical that the right of deduc tion should depend on the degree of the sanction, which induced the pro fessional person to equip himself with subdued clothing. Furthermore, `necessity' is not part of the formula in section 130 (a), and therefore the existence' of a sanction was wholly immaterial. So there was no rea on for concluding that the tradesman would be debarred from maintaining his own wardrobe of clothes for working days if the tax‑payer's argument were correct. Finally, there could be no distinction between top clothes and under clothes and other articles of wearing apparel. The position was ultimately reached that these was no distinction to be drawn between the position of male and female barristers or between the position of barristers and practi tioners of every other trade, profession and vocation or between top clothes underwear and. footwear. So, at the end of the day, if the argument for the tax‑payer is right, it will be open to every self‑employed person to set against his gross income the cost of the upkeep of a complete wardrobe of clothes, so long of he reserves such clothes strictly :or use only at work, or when proceeding to and from his work. Counsel for the tax‑payer did not shrink from this conclusion. I mention this wider aspect of the problem only to emphasise once again that there is nothing exceptional about the facts of this case. I to the question for your Lordships' decision whether there was evidence which entitled the commissioners to retch the conclusion that the object of the tax‑payer in spending this money was exclusively to serve the purposes of her profession, or was also to serve her private purposes of providing apparel with which to clothe herself. Slade, J. felt driven to answer the question in favour of the tax‑payer because he felt constrained by the commissioners' finding that, ire effect the only object present in the mind of the tax‑payer was the requirements of her profession, The conscious motive of the tax payer was decisive the reasoning of the Court of Appeal was the same. What was present in the tax‑payer's mind at the time of the expenditure concluded the case. My Lords, I find myself totally unable to accept this narrow approach. Of course the tax‑payer thought only of the requirements of her profession when she first bought (as a capital expense) her wardrobe of subdued cloth ing and, no doubt, as and when she replaced items or sent them to the launderers or the cleaners She would if asked, have repeated that she was maintaining her wardrobe because of those requirements. It is the natural way that anyone incurring such expenditure would think and speak. But she needed clothes to travel to work and clothes to wear at work, and think it is inescapable That one object, though not a conscious motive was the provision of the clothing that she needed as a human being. I reject the notion that the object of a tax‑payer is inevitably limited to the particular conscious motive in mind at the moment of expenditure. Of course the motive of which, the tax‑payer as conscious is of a vital significance, but it is not inevitably the only object, which the commissioners are entitled to find to exist. In my opinion the commissioners ware not only entitled to reach the conclusion that the tax‑payer's object was both to serve the purpose of her profession and also to serve her personal purposes, but I myself would have found it impossible to reach any other conclusion. It was inevitable in this sort of case that analogies would be canvassed; for example, the self‑employed nurse who equips ‑herself with what is conveniently called a nurse's uniform. Such cases are matters of fact and degree. In the case of the nurse, I am disposed to think without inviting your Lordships to decide, that the material and design of the uniform may be dictated by the practical requirements of the art of nursing and the maintenance of hygiene. There may be other cases where it is essential that the self‑employed person should provide himself with and maintain a particular design of clothing in order to obtain any engagements at all in the business that he conducts. An example is the self‑employed waiter, mentioned by Kerr, L. J., who needs to wear 'tails'. In his case the 'tails' are an essential part of the equipment of his trade, and it clearly would be open to the commissioners to allow the expense of their upkeep on the basis that the money was spent exclusively to serve the purposes of the business. I do not think that the decision, which I urge on your Lordships should raise any problems in the 'uniform' type of case that was so much discussed in argument. As I have said, it is a matter of degree. The case before your Lordships is indistinguishable in principle from Hillyer v. Leeke (Inspector of Taxes) ((1976) S T C 490). That 'case arose tinder Schedule E, but the ratio of the first ground of decision is equally applicable to Sch. D. The tax‑payer was a computer engineer. His work involved travelling to the establishments of his firm's customers. His employers required him to wear a suit. When present on a customer's premises he might be called on to assist the customers engineer at short notice without an opportunity to change into overalls or a boiler suit. The tax‑payer therefore maintained two working suits, which he wore only for the purposes of his work. He claimed a deduction of 50 for their upkeep. This was, disallowed by the inspector the commissioners confirmed the assessment. I read the follow ing passages from the judgment of Goulding, J. which semi to me to be correct and in point` (1976) S T C 490 at 492‑493) The truth is that the employee has to wear something, and the nature, of his job, dictates what that something‑will be, It cannot be said that the expense of his clothing is wholly or exclusively incurred in the performance of the duties of the employment ...,..In the case o clothing, the individual is wearing clothing for his own purposes o cover and comfort concurrently with wearing it in order to have the appearance which the job requires

Does it make any difference if the tax‑payer chooses, as apparently the tax‑payer did, to keep a suit or suits exclusively for wear when 'be is at work? Is it possible to say, as Templeman, J. said about protective clothing in the case of Caillebotte (Inspector of Taxes) v. Quinn ((1975) 2 All E R 412=(1975.) 1 W L R 731) that the cost of the clothing is deductible because warmth and decency are merely incidental to what is necessary for the carrying on of the occupation? That, of course, was a Schedule D and not a Schedule E case, but the problem arises in a similar way. The answer teat the Crown makes is that where the clothing worn ' is not of a special character dictated by the occupation as a matter of physical necessity but is ordinary civilian clothing of a standard required for the occupation, you cannot say that the one purpose is merely incidental to the other. Reference is made to what Lord Greene M R said in Norman v. Golder (Inspector of Taxes) ((1945) 1 All E R 352 at 354). This was another case under Schedule D. but again, in my judgment, applicable to Schedule E cases, where Lord Green: M R said, referring to the food you eat and the clothes that you wear: "But expenses of that kind are not wholly and exclusively laid out for the‑ purposes of the trade, profession of vocation. They ate laid out in part for the advantage and benefit of the tax‑payer as a living human being." In my judgment, that argument is conclusive of the present case, and the expenditure in question, although on suits that were only worn while at work, bad two purposes inextricable intermingled and not severable by any apportionment that the Court could undertake.' The Judge then founded on a second argument turning on the word `neces sarily', to which I need not rifer as that requirement only exists in the case of a Schedule E computation. I find myself in complete agreement with Goulding, J. and I regard his observations as appropriate in their entirety to the case before your Lordships. So, my Lords, I respectfully differ from the conclusion reached by Slade, J. and by the members of the Court of Appeal. I would allow this appeal. H. B. A. Appeal allowed,