[2012] UKFTT 545 (TC)
TC02222
Appeal number: TC/2012/00947
NIC and Penalties – partnership
business – employees’ private use of business car as benefit – whether “pooled”
car exemption applicable – No – Section 167 Income Tax (Earnings and Pensions)
Act 2003 – Appeal disallowed
FIRST-TIER TRIBUNAL
TAX CHAMBER
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1st
STOP 2 SHOP
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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 KENNETH MURE, QC
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MEMBER: IAN MALCOLM, BSc , BA, JP
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Sitting in public at George
House, 126 George Street, Edinburgh on Monday 30 July 2012
Mr Stewart Tough, FCCA, and
Barbara Ann Tough for the Appellant
William Kelly, instructed by
the General Counsel and Solicitor to HM Revenue and Customs, for the
Respondents
© CROWN COPYRIGHT
2012
DECISION
Introduction
1.
The Appellant, Ahmed Bros, is a partnership business trading as “1st
Stop 2 Shop” from premises at 32-34 Fintry Drive, Dundee. The Respondents are
HMRC.
2.
The Appeal relates to disputed NIC liabilities and related Penalties in
respect of a car used by two of the business’ employees, Mr Mohammed Abdullah
and his wife, Safina. They are respectively the son-in-law and daughter of one
of the partners of the business. The circumstances relating to their use of
the car came to light during a tax investigation into the partnership’s
affairs.
3.
In the case of employees whose earnings exceed £8,500 per annum, charges
to tax and NIC are made in respect of inter alia the private use of cars
and car fuel benefit. In determining whether the £8,500 margin is exceeded,
the tax value of the benefit is included. It appears that in the relevant
Years the earnings of both Mr and Mrs Abdullah exceeded £8,500.
4.
The nub of the dispute is whether a Vauxhall Astra was a “pooled” car,
and hence its use an exempt benefit for NIC purposes until its sale on
8 May 2007.
The Law
5.
Liability to Class 1A National Insurance Contributions arises on
benefits provided for higher paid employees, broadly as defined supra in
para 3. These are payable by the employer. P11D forms should be completed by
the employer reporting on these benefits to HMRC. Penalties result for the
employer in the event of failure to notify.
6.
Private use of cars is treated as such a benefit and fuel benefit
charges arise too. There is, however, an exception for pooled
vehicles. Section 167(3) ITEPA 2003 provides that:-
“In
relation to a particular tax year, a car is included in a car pool for the use
of the employees of one or more employers if in that year —
(a) the
car was made available to, and actually used by, more than one of those
employees,
(b) the
car was made available, in the case of each of those employees, by reason of
the employee’s employment,
(c) the
car was not ordinarily used by one of those employees to the exclusion of the
others,
(d) in
the case of each of those employees, any private use of the car made to the
employee was merely incidental to the employee’s other use of the car in that
year, and
(e) the
car was not normally kept overnight on or in the vicinity of any residential
premises where any of the employees was residing, except while being kept
overnight on premises occupied by the person making the car available to them.”
The
Facts
7.
The circumstances in which the disputed assessment arose did not bear to
be controversial. No witness evidence was led. Rather, argument was focussed
on the application of Section 167 in the circumstances accepted and
acknowledged by Mr Tough in correspondence on behalf of the Appellant. On
the basis of that correspondence and Parties’ submissions we make the following
findings-in-fact:-
(i) The
Appellant, the taxpayer, is a partnership which traded as “1st Stop
2 Shop” from premises at 32-34 Fintry Road, Dundee.
(ii) The
partnership owned three vehicles during the Years in question including in
particular a Vauxhall Astra until its sale on 8 May 2007.
(iii) The
Ahmed family (or certain of its members) which owned and ran the business lived
together at 93 Clepington Road, Dundee. In February 2006 Mr and Mrs
Abdullah, respectively the son-in-law and daughter of one of the partners moved
to a separate dwellinghouse at Craighall Court, Dundee. That address is
equidistant from the shop premises and the family’s principal residence at Clepington Road.
(iv) Mr
Abdullah was the main driver of the Astra, although he did not have the
exclusive use of it. It was used privately by him and his wife for commuting
purposes. That use totalled about 1,000 miles annually. Also, the vehicle was
kept overnight at the house of Mr and Mrs Abdullah for security purposes
(reference is made to Mr Tough’s letters of 24 March and 20 November 2009 and
14 June 2010 – respectively nos. 6/1, 16 and 45 of the Bundle).
(v) Fuel
for the car was provided also by the partnership.
(vi) An
assessment to Class 1A National Insurance Contributions and Penalties was made
on the Appellant. This was subsequently confirmed on review. However, in
light of further information provided on behalf of the Appellant these were
reduced to assessments totalling £2,288.05 on both Mr and Mrs Abdullah for
2004/05 to 2007/08. The Penalties imposed were revised to £2,288.65.
Reference is made to HMRC’s letter of 24 November 2011 (nos. 6/77-79 of
the Bundle). These amounts are the subject of the present appeal.
Submissions
8.
Mr Tough spoke to the terms of his Grounds of Appeal. He acknowledged
that Mr Abdullah was the main user of the Astra, although other family
members working in the shop used it too. As a rule it was Mr Abdullah who
opened the shop in the morning. 93 Clepington Road was the family address
where in fact the partners lived. That was consistent with the car being pooled.
The Abdullahs’ stayed there until February 2006, when they moved to Craighall Court. That was the Abdullahs’ own address.
9.
The vehicle, Mr Tough submitted, was a pooled vehicle.
Furthermore, Mr and Mrs Abdullah each earned under £8,500 in the relevant
Years, he claimed. In that case, Mr Tough continued, there was no duty to
report any benefits received.
10.
Finally, any Penalty, if imposed, should be mitigated as reasonable care
had been taken in relation to managing the business’ tax affairs.
11.
In reply for HMRC Mr Kelly confirmed that the issue between himself and
Mr Tough was whether the five conditions of Section 167(3) ITEPA were
satisfied so as to categorise the Astra as a pooled car. If not, there
was a charge to tax, or more particularly in the present case to NIC in respect
of the beneficial use of the vehicle and car fuel benefits. The charge would
not apply to employees whose earnings (when aggregated with such benefits) were
less than £8,500 in the Year in question. In calculating the amounts which
HMRC considered were due regard had been paid to the earnings of each of Mr and
Mrs Abdullah for each Year individually. (The original assessments were set
out at Folio 6A-10.) The price of the car affected the calculation of car
benefit (Sections 114 and 148 ITEPA) and its CO2 emissions determined the fuel
charge, where provided (Sections 149-153). HMRC had in forming their view
relied on Mr Tough’s fax letter of 24 March 2009 (Folio 6/1-2) as significant
since it had been sent before the tax investigation started. They had relied
also on his later fax letter of 14 June 2010 (Folio 6/45). Mr Kelly explained
that HMRC had experienced delays and difficulties in recovering full
information from Mr Tough about the partnership’s affairs. In light of
information obtained late HMRC had reduced their original assessment. The
revisals were explained and set out at Folio 6/76, 77-79. The NIC sought was
now £2,288.65 together with Penalties for the same amount.
12.
Mr Kelly relied on both paras (d) and (e) of Section 167(3) in
submitting that the Astra was not pooled. It had been acknowledged by
Mr Tough in the correspondence referred to that there had been private use of
the car, including for purposes of commuting. In amount (over 1,000 miles per
annum) it was not “incidental”. Para (e) had not been satisfied either, Mr
Kelly argued, as the vehicle had since February 2006 been kept at the
Abdullahs’ home at Craighall Court. Earlier it had been kept at the family
home at 93 Clepington Road. (Mr Kelly did not discuss the implications of one
or more of the partners of the business residing there in relation to the
wording of that provision).
13.
Finally, Mr Kelly sought Penalties for a failure exceeding 12 months to
submit the appropriate returns, capped at the total of the NIC sought.
Penalties, he submitted, could not be mitigated having regard to Section
81(2)(b) of the Social Security (Contributions) Regulations 2001.
Conclusion
14.
We considered the stance of HMRC well-founded in deciding that the Astra
was not a pooled car, for purposes of Section 167.
15.
The preliminary issue for us to consider was whether each of the
employees’ earnings (including the value of the car use and fuel) exceeded
£8,500 for the individual Years in question. While Mr Tough on behalf of the
taxpayer seemed to challenge this in his Grounds of Appeal, he did not produce
any alternative figures for taxed income to compare with those produced by HMRC
at Folio 6/8-10 and as revised at Folio 6/71-79. The onus of proof
rests, of course, on the taxpayer, and Mr Tough did not lead any
contradictory evidence. In these circumstances we consider it appropriate to
proceed on the basis of HMRC’s figures. Therefore, for the Years in relation
to which these assessments are made Mr and Mrs Abdullah were not in excluded
employments for benefit purposes, and the NIC liability extends to the car and
related benefits.
16.
The real issue which emerged as the hearing developed, was whether the
Astra was a pooled car for the purposes of Section 167 ITEPA. The
five conditions prescribed there are cumulative with the result that the
availability of the exclusion is severely limited. We agree with Mr Kelly that
all of these are not satisfied. By admission in the correspondence from Mr
Tough the employees did enjoy an element of private use of the vehicle,
although it was used also for business purposes. That private use included
commuting between home and work and totalled about or over 1,000 miles per
annum. That cannot, in our view, be regarded as incidental for the
purposes of para (d) of Section 167(3). We note particularly the terms of Mr
Tough’s faxed letters of 24 March 2009 and 14 June 2010 (Folio 6(1) and (45)).
Further, the correspondence acknowledges also that it was kept overnight
regularly near Craighall Court which was Mr and Mrs Abdullah’s own home from
February 2006. Earlier, of course, it was kept at 93 Clepington Road, the
family home where apparently at least one partner of the business resided. An
argument to the effect that the car was “… being kept overnight on premises
occupied by the person making the car available to [the employee]” was perhaps
suggested by Mr Tough but not developed. Quaere whether para (e) would
have been satisfied if one or more of the partners resided at 93 Clepington Road together with Mr and Mrs Abdullah? In any event we consider that
the private use element alone, noted in para (d) is sufficient to disqualify
the Astra from being pooled. In these circumstances we consider that
Section 167 is not satisfied and the car is not a pooled vehicle.
17.
The calculation of tax liability for private use of the car and fuel tax
benefit was not challenged by Mr Tough. The original figures assessed
were revised downwards in light of further information produced by Mr Tough to an
NIC liability of £2,288.65 and Penalties for the same amount. These were in
respect of the Years 2004/05 to 2007/08 inclusive for Mr Abdullah and for
2007/2008 only for Mrs Abdullah.
18.
We accept these revised figures as being correct and consider that the
assessment should stand. Further, we do not consider that we have a discretion
which might enable us to modify the penalty provision. Accordingly we dismiss
the Appeal.
19.
Finally, we record our thanks to both Mr Tough and Mr Kelly for the
helpful way in which they presented their submissions.
20.
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.
KENNETH
MURE, QC
TRIBUNAL JUDGE
RELEASE DATE: 28 August 2012
