Apollo Fuels Ltd and Others
| Jurisdiction | UK Non-devolved |
| Judgment Date | 12 December 2012 |
| Neutral Citation | [2013] UKFTT 350 (TC) |
| Date | 12 December 2012 |
| Court | First Tier Tribunal (Tax Chamber) |
[2013] UKFTT 350 (TC)
Judge David Demack, Ann Christian.
Mr Rory Mullan and Mr Oliver Marre both of counsel appeared for the Appellant
Mr Alan Hall, an Inspector of Taxes, appeared for the Respondents
Income tax and National Insurance contributions ("NICs") - benefits to employees - whether car leases to employees of group of companies constituted taxable benefits - no - whether taxable as earnings under Income Tax (Earnings and Pensions) Act 2003 ("ITEPA 2003"),Income Tax (Earnings and Pensions) Act 2003 section 62s. 62 - yes - whether tax payable where employees paid sums agreed with employers considered to be full market value - no - whether liability to NICs in those circumstances - no - appeal allowed.
The First-tier Tribunal allowed the taxpayer group of companies' ("the employers") appeal against HMRC's decision holding them liable to income tax and NICs in respect of their car leases to their employees ("the employees"). The Tribunal also allowed the employees' appeal against HMRC's assessment to income tax on the use of those cars. Since the condition in ITEPA 2003,Income Tax (Earnings and Pensions) Act 2003 section 114 subsec-or-para 1s. 114(1)(a) that the cars be "made available (without transfer of the property in it)" was not satisfied, the car benefit charge could not apply to the car leases. There being no restriction on the employees' use of their cars, the cars were "capable of being converted into money" for the purposes of ITEPA 2003, Income Tax (Earnings and Pensions) Act 2003 section 62s. 62. Thus, the cars were not company vehicles so that the employees were not liable to income tax on the mileage allowance payments they received. As there was no taxable benefit by the employees under ITEPA 2003, Income Tax (Earnings and Pensions) Act 2003 section 120s. 120, there could be no corresponding liability to class 1A NICs. The employees made full payment for such use; hence, there was no liability to class 1A NICs under the Social Security Contributions and Benefits Act 1992 ("SSCBA 1992"), Social Security Benefits and Contributions Benefits Act 1992 section 10s. 10.
The employers provided cars to their employees, both as perquisite of their employment and to enable them to carry out their duties. In April 2003, the employers implemented a new car leasing scheme, whereby they leased cars to the employees for an alleged full consideration. The employees were also credited with mileage allowances in respect of the business use of such cars against car rents they owed.
HMRC issued notices of determination to the employers imposing liability to account for PAYE in respect of mileage allowances for the tax years 2003-04 to 2009-10. Notices of decision were issued, requiring the employers to pay: (a) primary and secondary class 1 NICs on payments made to their employees, in respect of mileage allowances, and (b) class 1A NICs under SSCBA 1992,Social Security Benefits and Contributions Benefits Act 1992 section 10s. 10, in respect of the use of motor cars leased to their employees. HMRC also issued notices of assessment to the employees for the years 2007-08 to 2009-10, inclusive, in which they had been assessed to income tax on the use of cars.
The employers and employees ("the taxpayers", collectively) contended that the car benefit charge could not apply because the benefit in the form of a lease of a car was earnings within ITEPA 2003,Income Tax (Earnings and Pensions) Act 2003 section 62s. 62. In any event, the condition under ITEPA 2003, Income Tax (Earnings and Pensions) Act 2003 section 114 subsec-or-para 1s. 114(1)(a) for the car benefit charge to apply was not met. There was a transfer of property in a car in a manner that the employees had an exclusive right to the use of the cars. In Bristol Airport plc v PowdrillUNK [1990] 2 All ER 493 ("Bristol Airport"), Browne-Wilkinson V-C confirmed that the law had developed such that a lease of chattels gave rise to a property right. Since the car benefit charge did not apply, the mileage allowance exemption was available.
HMRC contended that a car benefit charge arose by virtue of ITEPA 2003,Income Tax (Earnings and Pensions) Act 2003 part 3 chapter 6Pt. 3, Ch. 6. Consequently, the cars made available to the employees were "company vehicles", and ITEPA 2003, Income Tax (Earnings and Pensions) Act 2003 section 229s. 229 did not apply to the mileage payments made to them. The cars provided to the employees were taxable as general earnings by virtue of ITEPA 2003, Income Tax (Earnings and Pensions) Act 2003 section 6s. 6 because the cars were caught by Income Tax (Earnings and Pensions) Act 2003 section 114s. 114. The conditions under ITEPA 2003, Income Tax (Earnings and Pensions) Act 2003 section 114s. 114 had been met, and, therefore, a chargeable benefit arose on the employees under ITEPA 2003, Income Tax (Earnings and Pensions) Act 2003 section 120s. 120 and a class 1A NIC charge on the employers. Bristol Airport did not establish any general principle that all chattel lease contracts were specifically enforceable and gave rise to a property right in the leased chattel. Furthermore, the sums paid or credited to employees in respect of mileage allowances were earnings subject to tax. The exemption contained in ITEPA 2003, Income Tax (Earnings and Pensions) Act 2003 part 4 chapter 2Pt. 4, Ch. 2 was not available where the car benefit charge applied.
The Tribunal held that HMRC could not rely on the reasoning inBristol Airport to claim that the employers' car leases did not give rise to property rights in the cars themselves. Under Calnan, Proprietary Rights and Insolvency, (2009), the law of personalty had moved on to the extent that lessees of goods had rights against third parties. Here, the car leases created proprietary rights and there was a transfer of property in the cars to the effect that the employees had an exclusive right to the use of the cars. Since the condition in ITEPA 2003, Income Tax (Earnings and Pensions) Act 2003 section 114 subsec-or-para 1s. 114(1)(a) was not satisfied, it followed that the car benefit charge could not apply to the car leases.
The Tribunal accepted the taxpayers' submission that the benefit in the form of a lease of a car was earnings within ITEPA 2003,Income Tax (Earnings and Pensions) Act 2003 section 62s. 62. There was no restriction on the employees' use of their cars and, as such, the cars were "capable of being converted into money" for the purposes of that section. If the rental payments made by the employees were equal to the money's worth value of the rights conferred on them by the lease, any charge to tax would in any event have been nil. A nil charge was not a charge to tax.
A car was a company vehicle only if either: (i) the car benefit applied, or (ii) the residual benefit charge applied. It was not a company vehicle if there was no chargeable benefit, or if such benefit was subject to tax as earnings within ITEPA 2003,Income Tax (Earnings and Pensions) Act 2003 section 62s. 62. Here, the employees' cars were not company vehicles as the chargeable benefit was subject to tax as earnings within ITEPA 2003, Income Tax (Earnings and Pensions) Act 2003 section 62s. 62. Thus, the employees were not liable to income tax on the mileage allowance payments they received.
As there was no taxable benefit by the employees under ITEPA 2003,Income Tax (Earnings and Pensions) Act 2003 section 120s. 120, it followed that there could be no corresponding liability to class 1A NICs. Even if the cars were company vehicles, it would have had no relevance for the purpose of the charge to NICs in so far as they related to the mileage allowance payments. There was no restriction equivalent to that for income tax on the exemption for mileage payments by reference to company vehicles for the purpose of NICs. As such, expenses payments made to the employees were exempt from NICs, whether or not the cars were company vehicles as defined in ITEPA 2003, Income Tax (Earnings and Pensions) Act 2003 section 236s. 236. As for income tax, the scale charge on a car was reduced by any contribution made by the employees for private use. As the employees made full payment for such use, there was no liability to class 1A NICs under SSCBA 1992, Social Security Benefits and Contributions Benefits Act 1992 section 10s. 10.
The Tribunal applied the decision inBristol Airport, which confirmed a development in law that property rights can now arise from lease of chattels. Thus, there could be transfer of property rights arising from car leases. In such instances, the car benefit charge does not apply. For commentary on cars made available as taxable benefit, see CCH Tax Reporter at 415-180.
[1]In these appeals we as the tribunal are required to determine the taxation implications of arrangements made by companies in the Newell & Wright group of companies ("the Group") whereby they leased cars to their employees for what they claim to have been full consideration, and credited the employees with mileage allowances in respect of the business use of such cars against car rents owed by employees.
[2]The names of the six Group companies concerned, the First Appellants, are set out in the first part of the First Schedule to our decision, and the names of the employees, the Second Appellants, in the second part of the same Schedule. The tribunal directed that the appeals of the First Appellants and the Second Appellants be heard together.
[3]The First Appellants appeal against (1) notices of determination given underSI 2003/2682 regulation 80reg.80 of the Income Tax (Pay As You Earn) Regulations 2003 in respect of the tax years 2003-04 to 2009-10 inclusive under which the Commissioners determined that they were liable to account for PAYE on certain payments to their employees made in respect of mileage allowances; and (2) notices of decision issued under Social Security...
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