[2012] UKFTT 234 (TC)
TC01928
Appeal number:
TC/2010/08032
NATIONAL
INSURANCE – Appeal against HMRC decision that Appellant company liable to class
1A National Insurance contributions in respect of car benefit and car fuel
benefit – Car initially purchased by employee and 90% interest subsequently
transferred from employee to company – Whether car “made available (without any transfer of the property in
it) to an employee” (ITEPA s.114(1)) – Yes – Whether fuel “provided for a car by reason of an employee's employment”
(ITEPA s.149(1)) – Yes – Appeal dismissed
FIRST-TIER TRIBUNAL
TAX CHAMBER
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G R SOLUTIONS
LTD
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Appellant
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- and -
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THE
COMMISSIONERS FOR HER MAJESTY’S
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Respondents
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REVENUE &
CUSTOMS
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TRIBUNAL:
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JUDGE CHRISTOPHER STAKER
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MS ELIZABETH BRIDGE
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Sitting in public in London on 2 March 2012
Mr Mark Ablitt, accountant,
for the Appellant
Mr Jon Davis, Presenting
Officer, for the Respondents
© CROWN COPYRIGHT
2012
DECISION
Introduction
1. The
Appellant appeals against a notice of decision dated 15 September 2010, as
varied by a decision dated 18 November 2010, by which HMRC decided pursuant to
s.8 of the Social Security Contributions (Transfer of Functions, etc) Act 1999 that
the Appellant company is liable to pay class 1A National Insurance
contributions in respect of a car benefit made available to Mr Ray Mark Hall.
2. The
following facts were not in dispute. Mr Hall is a director and employee and
shareholder of the Appellant company. On 17 April 2004 he purchased a BMW X5
motor vehicle with an invoice cost of £53,645. Some time during the company
accounting year ending 31 December 2004, Mr Hall sold a 90% share of the car to
the Appellant company for £48,636. The car remained available for Mr Hall’s
private use after the transfer. Mr Hall did not keep records of his business
and private mileage. He made a 10% contribution towards the running costs of
the car. He paid the company 10% of the total fuel costs of the car. No car
or fuel benefit charge was reported to HMRC by the company on forms
P11D/P11D(b) for the period 6 April 2003 to 5 April 2009.
3. In the 15
September 2010 decision, as varied by the 18 November 2010 decision, HMRC
determined that the Appellant company was liable to pay class 1A National
Insurance contributions in respect of car benefit and car fuel benefit in the
sum of £19,726.42.
4. In brief,
the Appellant’s case is that the car and fuel benefit legislation does not
apply to the vehicle because the car was not made available to Mr Hall by
virtue of his employment with the company, but rather, by virtue of his 10%
ownership of the car. The Appellant claims that 10% of all costs relating to
the car and all private mileage was reimbursed by Mr Hall to the company.
5. The HMRC
case is that the car and fuel benefit legislation does apply to the vehicle as
it was made available to Mr Hall by reason of his employment and was available
for private use.
Applicable legislation
6. Section
8(1) of the Social Security Contributions (Transfer of Functions, etc) Act 1999
relevantly provides:
(1) Subject to the provisions of this Part, it shall be
for an officer of the Board—
…
(c) to decide whether a person is or was liable to pay
contributions of any particular class and, if so, the amount that he is or was
liable to pay, …
7. Section
1(2) of the Social Security Contributions and Benefits Act 1992 (the
“Contributions Act”) relevantly provides:
(2) Contributions under this Part of this Act shall be
of the following six classes—
...
(b) Class 1A, payable under section 10 below by persons
liable to pay secondary Class 1 contributions and certain other persons;
8. Section
3(1) of the Contributions Act relevantly provides:
(1) In this Part of this Act and Parts II to V below—
(a) “earnings” includes any remuneration or profit derived
from an employment …
9. Section
10(1) of the Contributions Act relevantly provides:
(1)
Where–
(a)
for any tax year an earner is chargeable to income tax under ITEPA 2003 on an
amount of general earnings received by him from any employment (“the relevant
employment”),
(b)
the relevant employment is both—
(i) employed earner's employment, and
(ii) an employment, other than an excluded employment,
within the meaning of the benefits code (see Chapter 2 of Part 3 of ITEPA
2003),
(c) the whole or a part of the general earnings
falls, for the purposes of Class 1 contributions, to be left out of account in
the computation of the earnings paid to or for the benefit of the earner,
a Class 1A contribution
shall be payable for that tax year, in accordance with this section, in respect
of that earner and so much of the general earnings as falls to be so left out
of account.
10. Section 114(1) and (2) of
the Income Tax (Earnings and Pensions) Act 2003 (“ITEPA”) relevantly provide:
(1) This Chapter applies to a car or a van in relation
to a particular tax year if in that year the car or van—
(a) is made available (without any transfer of the
property in it) to an employee or a member of the employee's family or
household,
(b) is so made available by reason of the employment
(see section 117 ),
(c) is available for the employee's or member's private
use (see section 118).
(2) Where this Chapter applies to a car or van—
(a) sections 120 to 148 provide for the cash equivalent
of the benefit of the car to be treated as earnings,
(b) sections 149 to 153 provide for the cash equivalent
of the benefit of any fuel provided for the car to be treated as earnings …
11. Section 117 ITEPA provides:
For the purposes of this
Chapter a car or van made available by an employer to an employee or a member
of the employee's family or household is to be regarded as made available by
reason of the employment unless—
(a)
the employer is an individual, and
(b)
it is so made available in the normal course of the employer's domestic, family
or personal relationships.
12. Section 120 ITEPA provides:
(1)
If this Chapter applies to a car in relation to a particular tax year, the
cash equivalent of the benefit of the car is to be treated as earnings from the
employment for that year.
(2)
In such a case the employee is referred to in this Chapter as being
chargeable to tax in respect of the car in that year.
13. Section 149 ITEPA provides:
(1) If in a tax year—
(a) fuel is provided for a car by reason of an
employee's employment, and
(b) that person is chargeable to tax in respect of the
car by virtue of section 120,
the
cash equivalent of the benefit of the fuel is to be treated as earnings from
the employment for that year.
14. Section 150 ITEPA provides
for the method for calculating the cash equivalent of the benefit of the fuel.
15. Section 151 ITEPA provides:
(1) The cash equivalent of the benefit of the fuel is
nil if condition A or B is met.
(2) Condition A is met if in the tax year in question—
(a) the employee is required to make good to the person
providing the fuel the whole of the expense incurred by that person in
connection with the provision of the fuel for the employee's private use, and
(b) the employee does make good that expense.
(3) Condition B is met if in the tax year in question
the fuel is made available only for business travel (see section 171(1)).
The evidence and submissions of the parties
16. At the hearing, the
Appellant was represented by Mr Ablitt, and HMRC was represented by Mr Davis.
The Tribunal had before it the case file, a document bundle, a bundle of
statutes and case law, a supplementary bundle of statutes and case law, and a
statement of case and skeleton argument for HMRC.
17. On behalf of the Appellant,
Mr Ablitt submitted as follows.
18. The issue in this appeal is
whether the car was made available to Mr Hall by the Appellant company by
reason of his employment. The car was initially purchased by Mr Hall in its
entirety. It was entirely his personal property. He subsequently sold a 90%
interest to the Appellant company. Mr Hall and the company were thereafter
tenants in common, with the former owning 10% and the latter owning 90%. As
joint owner, the Appellant enjoyed the most extensive possessory right in
property law. This right was due to his joint interest in the car, and not due
to his employment. An asset already available for use by a person by virtue of
that person’s ownership rights cannot be deemed to have been made available to
that person by another person who only subsequently acquired a partial
ownership right and there has been no discontinuance of ownership by the former
person.
19. HMRC rely on the case of Christensen
(HMIT) v Vasili [2004] EWHC 476 (Ch) (“Vasili”), but that case
concerned a different situation, where initially it was the company which
bought the car, and then subsequently transferred a partial interest as tenant
in common. In Vasili, the court took the view that the company had made
the car available to the employee when the employee acquired an interest in the
car from the company that had previously been the sole owner. Vasili
did not deal with the converse situation where the employee is originally the
sole owner of the car, and is therefore not relevant. In Vasili, the
employee had no right to use the car until a right was bestowed on him by his
employer. In the present case, Mr Hall always had a right to use the car,
without anything being bestowed on him by his employer.
20. On behalf of HMRC, Mr Davis
submitted as follows.
21. The Appellant company
provided benefits to Mr Hall by making available to him a car which he could,
and did, use for private purposes, and by providing him with fuel for private
use which was not fully reimbursed by him. Mr Hall had 100% use of the car,
despite owning only 10%. Part-ownership of a car by an employee does not
remove it from the specific car benefit legislation: Vasili. A car is
“made available (without any transfer of the property in it)” (s.114(1) ITEPA)
unless the employee owns the car in its entirety. It is not possible to “use”
a share in a car, and s.114 ITEPA establishes a special regime for cars which
takes precedence over the general benefits legislation. The facts of the
present case are not sufficiently distinguishable from Vasili.
22. Section 10(1) of the
Contributions Act applied to Mr Hall. He received a benefit chargeable under
s.114 ITEPA having had a car made available to him for his personal use by his
employer. ITEPA s.114(2)(a) provides that the cash equivalent of the car is to
be treated as earnings. ITEPA s.114(2)(b) provides that the cash equivalent of
the fuel is to be treated as earnings. By virtue of s.3(1)(a) of the
Contributions Act, the car benefit and car fuel benefit also fall to be
considered as earnings. The company has provided Mr Hall with benefits
chargeable under ITEPA ss.114 and 149. Income tax and National Insurance
contributions are payable in respect of benefits treated by all employees other
than those excluded by s.216 ITEPA, which is not applicable in the present
case.
23. The car was made available
to Mr Hall for his personal use by reason of his employment, and it is not
relevant whether or not he made any payments to the company. Section 117 ITEPA
provides that if the car was made available by the Appellant company to Mr
Hall, the car is to be regarded as made available by reason of the
employment unless certain conditions are satisfied, which in this case they
are not. The meaning of “made available” was considered in Vasili at
[12]-[13]. Income tax is an annual charge, and it is therefore necessary to
consider for purposes of s.114 ITEPA whether a car has been “made available” in
a particular tax year. Even though the car is co-owned, it remains a single
indivisible asset. If both the employer and the employee want to use the car
at the same time, it is not possible for part of the car to go to one
destination and part of the car to another. Thus, when the employee uses the
car for private purposes, the employer’s share of the car is being made
available to the employee at that time. In Samson Publishing Ltd v Revenue
& Customs [2010] UKFTT 489 (TC) (“Samson”), Vasili was
found not to be distinguishable in circumstances where the directors purchased
the car jointly with the employer.
24. Vasili was decided
under s.157 of the Income and Corporation Taxes Act 1988 (“ICTA”), while this
case falls under ss.114 and 120 ITEPA. However, ITEPA is a re-enactment of
ICTA.
25. In relation to the fuel,
s.151 ITEPA was inapplicable. Mr Hall’s contribution of 10% of the cost of the
fuel was based on his percentage ownership of the car, and not the amount of
actual private use of the vehicle. The amount of fuel benefit therefore falls
to be calculated in accordance with s.150 ITEPA. Neither are ss.152 or 153
ITEPA applicable.
The Tribunal’s findings
26. Mr Davis on behalf of HMRC
has taken the Tribunal through a series of statutory provisions in support of
the argument that class 1A national insurance contributions were applicable
both in relation to car benefit and car fuel benefit. The Tribunal has found
this useful. Ultimately, however, both parties’ arguments turn on a narrow
issue of whether the car was “made available” to Mr Hall by the Appellant
company. If the car was “made available” to Mr Hall by the company, it would
be deemed to have been made available by reason of his employment by
virtue of s.117 ITEPA. The Tribunal is also satisfied that if the car was
“made available” to Mr Hall by the Appellant company by reason of his
employment, the fuel was similarly made available for the car by reason of his
employment, for purposes of s.149 ITEPA.
27. In relation to the
expression “made available”, it was said in Vasili at [12] that:
Turning now to the words in issue, I consider that
the words “made available (without any transfer of the property in it)” are not
to be construed in a manner which has the result that the conferring of any
interest upon the employee sufficient to give the employee an independent right
to possess and use the asset is sufficient to prevent the car from being “made
available”.
28. In Samson, as noted
above, Vasili was found not to be distinguishable in circumstances where
the directors purchased the car jointly with the employer.
29. The Tribunal considers that
although Vasili and Samson involved different legislative
provisions to those applicable in the present case, the principles are not
materially different.
30. The Tribunal is not persuaded
that this case can be distinguished on the basis that Mr Hall initially had
sole title to the car, unlike Vasili where the company initially had
sole title to the car, or Samson where the company and employee had
joint ownership from the outset.
31. The Tribunal sees merit in
the HMRC argument that Income tax is an annual charge, and that it is therefore
necessary to consider for purposes of s.114 ITEPA whether a car has been “made
available” in a particular tax year. The expression “made available” needs to
be applied to the facts in the tax year in question, rather than to the point
in time at which property titles were established, which might have occurred in
a previous tax year. It follows from this, in the Tribunal’s view, that the
expression “made available” should be applied to the point in time at which the
vehicle is used, rather than the point in time at which it is purchased, or the
point in time at which a partial property title is transferred from the company
to the employee or vice versa. If at the time of use of the car, the
company owns 90% of the car and the employee owns 10%, that is the relevant
circumstance to which the expression “made available” must be applied. It is
irrelevant how the circumstances of that joint ownership came to be established
at some point in the past.
32. The Tribunal is also
persuaded by the HMRC argument that if both the employer and the employee want
to use the car at the same time, it is not possible for part of the car to go
to one destination and part of the car to another, and that when the employee
uses the car for private purposes, the employer’s share of the car is being
made available to the employee at that time.
33. The Tribunal therefore does
not find that this case is relevantly different from either Vasili or Samson.
34. It follows that the appeal
must be dismissed in relation to the car benefit. In relation to the fuel
benefit, the Tribunal also accepts the HMRC argument, and for the reasons
above, the appeal must also be dismissed.
Conclusion
35. The appeal is dismissed.
36.
This document contains full findings of fact and reasons for the
decision. Any party dissatisfied with this decision has a right to apply for
permission to appeal against it pursuant to Rule 39 of the Tribunal Procedure
(First-tier Tribunal) (Tax Chamber) Rules 2009. The application must be
received by this Tribunal not later than 56 days after this decision is sent to
that party. The parties are referred to “Guidance to accompany a Decision from
the First-tier Tribunal (Tax Chamber)” which accompanies and forms part of this
decision notice.
DR CHRISTOPHER STAKER
TRIBUNAL JUDGE
RELEASE DATE: 02 April 2012
