Johnstone and Others
| Jurisdiction | UK Non-devolved |
| Judgment Date | 22 March 2016 |
| Neutral Citation | [2016] UKFTT 194 (TC) |
| Date | 22 March 2016 |
| Court | First Tier Tribunal (Tax Chamber) |
Judge Christopher McNall, Shameem Akhtar
Mr Martyn F Arthur of Martyn F Arthur Limited appeared for the Appellants
Mr Matthew Mason and Mrs Linda McGuigan, Officers of HMRC, appeared for the Respondents
Income tax – Moneys paid as accommodation allowances – Whether earnings – Income Tax (Earnings and Pensions) Act 2003 (ITEPA 2003), s. 62 – Yes – Whether exempt from charge under ITEPA 2003, s. 99 – No – Whether incurred wholly exclusively and necessarily in the performance of the duties of employment – ITEPA 2003, s. 336 – No – Appeals against Closure Notices dismissed.
The First-tier Tribunal (FTT) held that accommodation allowances paid to each appellant were taxable as earnings under ITEPA 2003, s. 62, were not accommodation provided for the performance of duties under ITEPA 2003, s. 99 and were not wholly, exclusively and necessarily for the purposes of their employment within ITEPA 2003, s. 336.
The appellants were members of a team which maintained and operated a Search and Rescue helicopter from Stornoway Airport on the Isle of Lewis in the Outer Hebrides. The team carried out various kinds of mountain, maritime and costal rescues. The appellants undertook different roles, both in terms of operating the helicopter whilst airborne, and in terms of maintaining and servicing it on the ground.
In broad terms, each appellant had claimed approximately £10,000 per annum by way of accommodation allowances. The appellants argued that the nature of their work required them to reside in a particular place, namely within fifteen minutes drive of the base at Stornoway Airport.
HMRC argued that the accommodation allowances were taxable within the meaning of ITEPA 2003, s. 62. Also, ITEPA 2003, s. 99 (accommodation provided for performance of duties) could not apply as this section applied only to the situation where an employer provided living accommodation as opposed to extra salary or rent allowance.
HMRC accepted that each appellant incurred an accommodation expense, but did not accept that expense was incurred wholly, exclusively, and necessarily in the performance of the duties of the employment within the meaning of ITEPA 2003, s. 336. HMRC argued that the housing was dual purpose, and that the expense allowed each appellant to be in a position to carry out the duties of the employment, but did not actually cover the performance of the duties.
The FTT concluded without hesitation that the accommodation allowance paid to each appellant was properly to be regarded as earnings within the meaning of s. 62. The allowance was paid in relation to employment, by an employer to an employee, and it was an incidental benefit paid in money.
With regard to the exemption to charge under s. 99, the FTT held that could only be read intelligibly as referring to accommodation provided by an employer to an employee whereas all the living accommodation in question was either bought, or rented on the private market.
There was no express term in the contract of employment requiring residence within 15 minutes. None of the appellants was contractually required to live in the particular accommodation which they did. The appellants had therefore not shown that the occupation of any property by any of the appellants could be said to have been wholly, exclusively, and necessarily for the purposes of their employment. Even if there were, it was, at best, dual use, with the business purpose being ancillary. The appellants were all employed to work at the base, where the helicopter was, and the base was where they all did most of their work. The FTT held that being on call whilst at home, or undertaking ancillary tasks at home, did not predominate to such an extent that occupation for the purposes of warmth and shelter (a non-business use) could be said to be merely incidental. It therefore concluded that no deduction was allowed for the accommodation allowances within ITEPA 2003, s. 336 and the appeals were dismissed.
The FTT in this case disagreed that the appropriate analysis was to equate the position of the appellants with that of employees required to stay in accommodation supplied by the employer, or in respect of which the employer was paying rent directly to a third party landlord. Also, the FTT did not consider that, on the evidence heard, the occupation of any property by any of the appellants could be said to be wholly, exclusively, and necessarily for the purposes of their employment. As the FTT pointed out, the courts had consistently shown that was a high hurdle to overcome.
[1] The appellants are or were members of the team which, pursuant to a contract between their employer and the Maritime Coastguard Agency (MCA), maintains and operates a Search And Rescue (SAR) helicopter from Stornoway Airport on the Isle of Lewis in the Outer Hebrides. The team carries out various kinds of mountain, maritime and coastal rescues. The appellants undertook differing roles, both in terms of operating the helicopter whilst airborne, and in terms of maintaining and servicing it on the ground.
[2] Their appeals were joined pursuant to an Order made on 5 February 2015. Each appeal principally concerns the tax treatment of sums of money described as accommodation allowances paid to each of them by their former and present employers, CHC Scotia Ltd. and Bristow Helicopters.
[3] In broad terms, each appellant had claimed approximately £10,000 per year by way of accommodation allowances. The earliest claims were made in relation to the tax year 2008/09 and were for each successive year up to and including 2012/13.
[4] The appellants made claims for overpayment relief under Schedule 1AB of the Taxes Management Act 1970 (TMA). HMRC did not contend that any of these claims were out of time.
[5] Closure Notices were issued in respect of each appellant under sections 28A(1) & (2) of TMA: 27 February 2014 (Messrs Craig, Slater, and Wade); 16 April 2014 (Mr Johnstone); 10 July 2014 (Mr Horton). Pursuant to section 29(4) of TMA, further assessments were made against Mr Horton on 12 March 2014; and Mr Johnstone on 16 April 2014. A further assessment was made against Mr Wade, pursuant to section 29(5) TMA on 27 February 2014.
[6] The appellants' Grounds of Appeal in their respective Notices of Appeal were extremely brief. It was said that HMRC's decision was unsustainable because HMRC had not correctly applied the legislation regarding the treatment of payments to employees for accommodation expenses when the nature of their work requires them to reside in a particular place.
[7] The first issue is whether the moneys described as accommodation allowances paid to each appellant by their employer are taxable as earnings within the meaning of section 62 of the Income Tax (Earnings and Pensions) Act 2003 (ITEPA).
[8] It was confirmed by Mr Arthur, who appeared on behalf of all the appellants, that this issue remained in dispute.
[9] HMRC's position, set out in correspondence from the very outset, was that there is no question that these payments fall to be treated as earnings under section 62 ITEPA.
[10] HMRC relied on its Employment Income Manual (EIM) 11307 (Accommodation: rent allowance or extra salary) which reads as follows:
It is common for an employee to:
Own the property he lives in, or
Rent the property from a third party, not his employer.
In both cases, the employer may pay the employee extra salary or a rent allowance to help with the accommodation costs. This extra salary or rent allowance will count as earnings under section 62 ITEPA … There will be no further earnings charge under Part 3 Chapter 5 ITEPA 2003 (living accommodation benefit)
[11] The appellants claim exemption from charge by virtue of section 99 ITEPA. That section is part of Chapter 5 of ITEPA, which is headed: Taxable Benefits: Living Accommodation.
[12] Section 97 (Living accommodation to which this Chapter applies) states that the chapter applies to living accommodation provided for an employee by reason of the employment.
[13] Section 99 is an exception to the general tax treatment of living accommodation under that Chapter. Insofar as material, section 99 reads:
(1) This Chapter does not apply to living accommodation provided for an employee if it is necessary for the proper performance of the employee's duties that the employee should reside in it.
(2) This Chapter does not apply to living accommodation provided for an employee if–
a) It is provided for the better performance of the duties of the employment, and
b) The employment is one of the kinds of employment in the case of which it is customary for employers to provide living accommodation for employees.
[14] HMRC's position is that section 99 does not engage in these appeals, on the basis that section 99 applies only to the situation where an employer provides living accommodation (as opposed to extra salary or rent allowance), the benefit of which is charged to tax under section 63 ITEPA (and not section 62).
[15] All the appellants (except for Mr Horton) also claim under section 336 of ITEPA. However, following discussion with the tribunal, we understood HMRC's position to be that we should consider Mr Horton as also making a claim under section 336, and that, if the other appeals were allowed under section 336, then Mr Horton's appeal should be treated similarly. In our view, seemed to be a pragmatic and sensible concession on the part of HMRC.
[16] Section 336 ITEPA reads:
(1) The general rule is that a deduction from earnings is allowed for an amount if–
a) the employee is obliged to incur and pay it as holder of the employment, and
b) the amount is incurred wholly, exclusively and necessarily in the performance of the duties of the employment.
[17] Put shortly...
To continue reading
Request your trial