Today’s Blog is a classic example of not taking tax advice from a ‘mate down the pub’ and concerns a locum doctor’s £160k travel and subsistence expense claim falling down when subject to scrutiny at the First Tier Tax Tribunal (FTT) who found that he’d submitted “impossible” figures and made deliberate errors.
Background
Doctor Nwaneri is a full-time locum doctor who worked at a few NHS Trust hospitals, primarily Southport & Ormskirk and Shrewsbury & Telford, over a three-year period. In March 2022, he submitted SA tax returns for the three tax years, 2019-20, 2020-21 & 2021-22, claiming unusually large travel and subsistence expenses of £54,630, £43,480, and £64,010, respectively.
HMRC, who clearly suspected potential tax fraud, opened a tax enquiry into the Doctor’s tax returns in January 2023 and requested supporting documentation, including contracts, mileage logs, receipts and bank statements. In response to HMRC’s request, Nwaneri provided very little, claiming that records were largely unavailable due to the passage of time.
The information that the good doctor did provide did very little to allay HMRC’s concerns, especially so, as the expense claims represented over 50% of his income and the evidence he did eventually provide, was not only incomplete but also contained a significant number of obvious errors and inconsistencies.
In the evidence that Nwaneri submitted, it was clear that had not undertaken any double shifts which would have taken him to both hospitals on the same day. It was also evident that his travel claim was from his home to NHS Southport for five days per week and again from his home to NHS Shrewsbury for four days per week, both for 52 weeks a year for all three years.
As a result of the doctor’s lack of credible evidence and bizarre explanations, HMRC rejected his expense claims, and issued penalty notices for each of the three years’ tax returns. Nwaneri, allegedly after advice from his ‘mate down the pub,’ decided to appeal the penalty notices and so off to the FTT everyone went.
What happened at the tribunal (FTT)
After an examination of the submissions made by the doctor and HMRC, the FTT judge commented: “The appellant’s evidence shows that he had apparently incurred travel expenses for an impossible 9 days per week.” Further discrepancies emerged between the figures reported in the returns and later spreadsheets submitted during the enquiry. Mileage claims were similarly flawed, significantly exceeding the vehicle’s annual mileage according to publicly available DVLA MOT records.
The key issue was on travel expenses, not how they were calculated, but whether they were deductible at all, and this hinged on whether the doctor’s work locations qualified as temporary or permanent workplaces. Because Nwaneri operated via an intermediary, the FTT confirmed that each engagement was treated as a separate employment for the purposes of the travel expense rules.
The judge then made it clear that VAT law states that travel expenses are only deductible when incurred in the performance of duties or for necessary attendance at a temporary workplace. Additionally, he said that the law also denies relief for “ordinary commuting”, i.e. travel between home and a permanent workplace. Nwaneri argued that, as a locum, his assignments were temporary and therefore his travel was deductible.
The judge rejected Nwaneri’s argument, pointing out that in each relevant employment period, he was on a full-time contract at each hospital, but not both hospitals at the same time. His claims for food & drink were rejected by the judge as not only were such claims not allowable in law, in any event, he couldn’t produce any receipts or any other credible evidence to support the claimed amounts.
The conclusion and its consequences
The FTT rejected Nwaneri’s claim in its entirety, but then they had to consider the level of penalties to be applied, based on whether they believed the inaccuracies to be deliberate or just careless. When asked if he’d had advice or help in compiling his expenses claim, Nwaneri said that he’d had advice from a friend in his local pub whom he considered to be a financial expert.
The judge commented that notwithstanding the alleged advice, his claim had an almost total lack of supporting evidence, mileage had been grossly exaggerated and the claims were based on impossible work schedules, plus the levels of expenses were hugely disproportionate to his earnings.
The tribunal chair finished his summing up by stating that the FTT had come to a unanimous conclusion that the pattern of behaviour demonstrated by the doctor could not be explained away as honest mistakes and was therefore considered to be deliberate. Finally, the judge said the doctor’s appeal was dismissed and they upheld the penalties for deliberate behaviour imposed by HMRC.
The good doctor’s final indignity was that the Tribunal Judge, in his summing up, also said that the FTT had found Nwaneri’s actions to be so egregious that they were awarding indemnity costs to HMRC.
Accountant’s view
If the good doctor had had any commonsense, he should have just accepted the original penalty from HMRC and kept his head down, but no, because of stupidity or arrogance he appealed the penalty. The outcome was even greater penalties; punitive interest and he had to pay all of his and the Revenue’s costs.
To make matters worse, as the FTT found his actions were deliberate, it is therefore probable that he will be placed on HMRC’s deliberate defaulters list. This is likely to have profound implications, particularly as his is a regulated profession and the consequences for his career will far exceed the tax he tried to save.
So, in conclusion, if you take advice, whether it be from your ‘mate down the pub’, ChatGPT or a dodgy financial adviser, the message is the same: when expense claims look excessive, or seem too good to be true, they probably are and the consequences of trying it on with HMRC, can be very very expensive.
