Rodents Ate My Evidence!

Mark McLaughlin warns that a lack of supporting evidence can be fatal to a tax relief claim for expenses.
Question: What do the following statements have in common?
• My wife has been seeing aliens
• My mother-in-law is a witch and put a curse on me.
• I fell in with the wrong crowd.
Answer: They were all excuses given by taxpayers to HM Revenue and Customs (HMRC) for filing their tax returns late. Unsurprisingly, HMRC were not very sympathetic! Prove it Similarly, HMRC is not known for its understanding when taxpayers claim tax relief without supporting evidence. For example, an employee might incur work-related expenditure without reimbursement from their employer and seek to claim relief through their tax return. HMRC may subsequently open a tax return enquiry to establish whether the expenditure was incurred ‘wholly, exclusively and necessarily’ in the performance of the employee’s employment duties (within ITEPA 2003, s 336(1)).
The ‘wholly, exclusively and necessarily’ requirement can be a challenging hurdle, which is often the cause of disputes between taxpayers and HMRC. However, it is not the only one. The employee must also be obliged to incur and pay the expense in the duties of their employment. In addition, the expense must be one that each and every holder of that employment would have to incur (see HMRC’s Employment Income Manual at EIM31630). Perhaps the most obvious test, which is sometimes neglected when it comes to providing HMRC with evidence, is that the expense must actually be incurred and paid.

Much to chew over!

For example, in Mukuna v Revenue and Customs [2025] UKFTT 1020 (TC), the taxpayer was employed as a bus driver. His tax returns for 2016/17 to 2021/22 included tax relief claims for certain items of expenditure on the provision of: protective equipment during the Covid pandemic; accommodation for himself and his family during the pandemic; and equipment necessary to enable him to carry out his functions as a bus driver following a road traffic accident in November 2016. The original expense receipts were unavailable as, according to the taxpayer, they had been stored in his loft and were eaten by rodents. HMRC considered that there was no evidence that the expenses were incurred at all; and even if they were, they were not incurred wholly, exclusively and necessarily in the performance of his duties as a bus driver. HMRC disallowed the expenses and charged a penalty for submitting deliberately inaccurate tax returns. The First-tier Tribunal (FTT) considered the evidence, including copies of loan agreements which the taxpayer claimed provided funds to enable him to purchase the items for which he had claimed expenses. However, he did not have complete bank account records in relation to them, because some had been eaten by rodents. The taxpayer also stated that he had paid for the equipment in cash and electronic transfers, but the receipts for the purchases were not available as they had also been eaten by rodents. He was unable to obtain replacement receipts from the suppliers because he had paid in cash. The FTT dismissed the taxpayer’s appeal against the additional tax assessed by HMRC. Furthermore, the FTT considered HMRC had established that the taxpayer’s behaviour was deliberate, and the penalty charge was upheld.

Practical tip

Lost or destroyed expense receipts are not necessarily fatal to a tax relief claim if proof of payment is available. However, estimating expenses in round sums should be avoided, as material inaccuracies could result in additional tax and penalties.