Harrison and Others
| Jurisdiction | UK Non-devolved |
| Judgment Date | 31 January 2019 |
| Neutral Citation | [2019] UKFTT 72 (TC) |
| Date | 31 January 2019 |
| Court | First Tier Tribunal (Tax Chamber) |
Judge Richard Thomas, Ann Christian
Stephen Outhwaite of Outhwaite Associates Ltd appeared for the appellants,
Richard Jones, Litigator, HM Revenue & Customs, appeared for the respondents
Income tax and National Insurance contributions – Benefits from availability of cars and use of fuel cards – whether Apollo Fuels applied because fair bargain – Payments for private use – Whether discovery assessments on directors met conditions in TMA 1970, s. 29 – Effect of discovery assessment where enquiry still in train – Application of TMA 1970, s. 32 – Whether NICs decision on Class 1A correct – Whether penalties under FA 2007, Sch. 24, apply – Careless or deliberate? – Whether penalties under SSCR 2001, reg. 81 apply – Income tax appeals allowed – NICs appeals allowed in part.
The First-tier Tribunal (FTT) found that cars leased for the directors did not fall within ITEPA 2003, s. 114. However, penalties on the company for failing to file a P11D(b) in time and Class 1A NICs in respect of the other benefits could be charged.
The appeals by Mr Harrison and Mr Solway (the directors) were against HMRC's decision that for the tax years 2010–11 to 2013–14 cars leased by the directors were company cars under s. 114(1), ITEPA 2003 and company fuel cards given to the directors were taxable as benefits under ITEPA 2003, s. 150. The company, Harrison Solway Logistics Ltd (HSL), also appealed against HMRC's decision that Class 1A NICs charges were due on the provision of the car and fuel benefits and penalties for its failure to deliver returns of benefits provided by it to the directors.
HMRC contended that:
- Cars were made available to the directors by reason of their employment and without any transfer of the property in them and they were available for private use, and so s. 114(1), ITEPA 2003 applied.
- Company fuel cards were given to the directors who did not reimburse HSL. Benefits therefore arose under s. 150–153, ITEPA 2003.
- A Class 1A NIC charge was due on HSL on the provision of car and fuel benefits.
HMRC submitted that there was no transfer of proprietary interest in the cars as it was HSL which entered into leasing agreements and there could be no de facto lease between the company and the directors because the cars always remained the property of the lessor. The lease agreements seen by HMRC precluded the transfer of agreements to anyone else without the consent of the lessor, and there was no evidence that any such transfer had been sanctioned. HSL had also not imposed any requirement on the directors to pay for private use.
HMRC argued that R & C Commrs v Apollo Fuels Ltd [2014] BTC 510 was not in point in this case as in Apollo there was a lease from the employer to the employees on normal commercial terms, whereas in this case HSL could not transfer the property in the vehicles to the directors because it was prohibited from doing so. Nor had the directors or HSL produced sufficient evidence to show that the directors paid full market value for the cars.
HMRC argued that the directors had omitted benefits in kind from their returns and that their behaviour was deliberate so that s. 29(1) and (4) TMA was satisfied.
HMRC disagreed that the appellants took reasonable care because they were acting on the professional advice of their agents. HMRC had taken into account that the appellants claimed they were badly advised by their advisers but these circumstances were not special, in that they were not uncommon or exceptional.
The appellants argued that:
- The arrangements made in this case followed that in Apollo. IN HSL's view there was both an oral and de facto implied arrangement between the company and directors in respect of the vehicles leased by HSL. Accordingly property had passed to the directors so that s. 114(1)(a), ITEPA 2003 was not satisfied.
- All costs in respect of the vehicles had been borne by the directors through their directors loan accounts so there had been no provision of a benefit in kind either below market value or for nil consideration.
- Amendments to s. 114 made by FA 2016 indicated that HMRC accepted that fair bargain arrangements were not within s. 114 before then as determined in Apollo.
As to car fuel this falls away if no charge arises on provision of the cars, but in any event, the appellants argued, all fuel costs were effectively met privately by use of directors' loan accounts or by “making good” to HMRC.
The directors received no overall financial benefit having met the full cost of the vehicles on commercially available terms. Debits on an overdrawn loan account represent payments as the loan account represents an enforceable debt and was not different to any other loan.
As to the absence of a written lease agreement between HSL and its directors, which HMRC pointed to as distinguishing the facts in this case from those in Apollo, the appellants argued that it is was a tenet in English contract law that the terms could be written, oral or implied. It was always the stated intention of the directors that title would pass to them and this supplanted the lease between the company and the lessor. This was evidenced by the passing on of all costs to the directors and the lack of any VAT reclaim by HSL in respect of the lease costs.
The appellants argued that as there was no liability there was no tax chargeable and there could not be any penalties. If there was tax due, then the appellants took reasonable care to make accurate returns. They did not act deliberately, but on the advice of their previous advisers.
The FTT held that they could not read the decision in Apollo as confined to arrangements which amounted to hiring of goods.
The FTT could see no reason for not taking the directors loan accounts debits into account. Those debits were the amounts of the hire purchase and rental payments made by HSL to the leasing companies. By acknowledging the obligation to pay the company these amounts through the directors' loan accounts the directors were paying for precisely what HSL was able to give them and had itself paid for, the right to use the vehicles for whatever they wished whether for HSL's business or for their own private purposes. There was no benefit to them in the arrangements and so s. 114, ITEPA 2003 did not apply to the provision of cars to the directors.
As there was nothing to be charged to income tax in relation to cars and fuel, the assessments and interest fell away. However, the FTT held that penalties on the company for failing to file a P11D(b) in time to HMRC from benefits accruing to the directors from BUPA subscriptions etc, under reg. 81(2) SSCR did apply.
With regard to NICs, the FTT found that Class 1A NICs should have been charged in respect of benefits other than car and fuel benefits.
Thus, the Income tax appeals were allowed and the NICs appeals were allowed in part.
The Court of Appeal in Apollo held that a tax charge could only arise if the terms on which the car was leased to an employee conferred a “benefit”. Changes made by FA 2016 override this decision so that, s. 114(1A) confirms that in determining whether the rules apply to a car or van it is immaterial whether, or not, the terms on which the car or van is made available constitute a fair bargain. However, FA 2016 is not retrospective so the changes were irrelevant in this case and a fair bargain nullified the charge under s. 114.
[1] This hearing was of appeals by Mr Paul Harrison (“Mr Harrison”) and Mr Lee Solway (“Mr Solway”) (together “the directors”) against:
- Discovery assessments on each of them for the tax years 2010–11, 2011–12, 2012–13 and 2013–14.
- Amendments to their tax returns made in closure notices following an enquiry into each of their returns for 2012–13.
- Penalties under Schedule 24 Finance Act (FA) 2007 for inaccuracies in their returns for all four tax years.
[2] The hearing was also of appeals by Harrison Solway Logistics Ltd (“HSL”) against decisions made by HMRC on HSL in relation to Class 1A National Insurance Contributions (“NICs”) and penalties for its failure to deliver to HMRC returns of benefits provided by it to Mr Harrison and Mr Solway for the purposes of Class 1A NICs.
[3] In addition a number of determinations (including penalty determinations) and decisions made by HMRC on HSL in respect of PAYE and of primary and secondary Class 1 NICs had been appealed by it and were included in the matters listed for hearing. We were informed at the start of the hearing that these matters, which covered tax years from 2007–08 to 2011–12 and involved amounts of over £1,700,000, had been agreed in principle in a very much smaller aggregate amount, but that no s 54 Taxes Management Act 1970 (“TMA”) agreement had been made. We therefore have, in our decision, varied the determinations etc concerned in principle in accordance with the parties' agreement as to figures without specifying what the figures are for each tax etc for each tax year.
[4] We had witness statements from Mr Martin Bland and Mr Stephen Forsythe, officers of HMRC who had succeeded Ms Claire Lucas and Mr John Carruthers, the officers who opened the enquiries and checks. Those officers gave evidence and were cross-examined by Mr Outhwaite.
[5] There were no witnesses listed for the appellants. We checked at the start of the hearing if Mr Outhwaite proposed to call either Mr Harrison or Mr Solway or both, given that one at least of them was present in the hearing room. Mr Outhwaite said he was not so proposing, even though we warned him that since much of the appellants' case relied on there being oral arrangements and agreements not reflected in the written evidence we would be left making what inferences we could from the documents we had.
[6] From the documents supplied in our bundle which were exhibits to the witness statements of Mr Bland and Mr Forsythe we set out, as findings of fact, a chronology of events relevant to...
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