Noel Payne v The Commissioners for HM Revenue and Customs
| Jurisdiction | England & Wales |
| Judge | Lady Justice Asplin,Lord Justice David Richards,Lord Justice Patten |
| Judgment Date | 20 July 2020 |
| Neutral Citation | [2020] EWCA Civ 889 |
| Court | Court of Appeal (Civil Division) |
| Date | 20 July 2020 |
| Docket Number | Case Nos: A3/2019/1203 and A3/2019/1215 |
[2020] EWCA Civ 889
IN THE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE UPPER TRIBUNAL
(Tax and Chancery Chamber)
Judge Greg Sinfield and Judge Jonathan Richards
UKUT 0090 (TCC)
Royal Courts of Justice
Strand, London, WC2A 2LL
Lord Justice Patten
Lord Justice David Richards
and
Lady Justice Asplin
Case Nos: A3/2019/1203 and A3/2019/1215
In the First Appeal A3/2019/1203:
Mr John Gardiner QC and Mr Edward Hellier (instructed by Slaughter and May) for the Appellants
Ms Hui Ling McCarthy QC and Mr Hugh Flanagan (instructed by Her Majesty's Revenue and Customs) for the Respondent
In the Second Appeal A3/2019/1215:
Ms Hui Ling McCarthy QC and Mr Hugh Flanagan (instructed by Her Majesty's Revenue and Customs) for the Appellant
Mr John Gardiner QC and Mr Edward Hellier (instructed by Slaughter and May) for the Respondents
Hearing dates: 10 th–11 th June 2020
Approved Judgment
These appeals are concerned with the classification of the Vauxhall Vivaro (the “Vivaro”) and the first and second generations of VW Transporter T5 Kombi van (the “Kombi” or “Kombis”) for the purposes of income tax and national insurance contributions. The vehicles were provided by Coca-Cola European Partners Great Britain Limited (“Coca-Cola”) to its employees for use in their work and for their own private purposes. The cash equivalent of the benefit of having been provided with a vehicle is treated as earnings from employment and taxed accordingly and there is a corresponding charge in respect of national insurance.
The classification of the vehicles is of importance because the cash equivalent of the benefit of a “van” and a “car”, both of which are defined statutory terms, are calculated differently. Although the calculation is based on numerous factors, including the vehicle's emissions, in general, if a vehicle falls within the definition of a “car” the benefit and, as a result, the tax levied, will be greater than if it were a “van”.
In fact, the question at the heart of both appeals is whether the vehicles in question were “goods vehicles”, which is also a defined term. The question is of considerable importance. Large numbers of employees are supplied with Kombis or Vivaros, or vehicles which share their attributes.
Background
At the relevant times, Mr Payne and Mr Garbett were employed by Coca-Cola as technicians. In the tax year 2016–17 they were provided with a second-generation VW Transporter T5 Kombi van (a “Kombi 2”). In addition, in the tax year 2011–12, Coca-Cola provided other employees with the use of first-generation VW Transporter T5 Kombi vans (each a “Kombi 1”) and Vivaros.
The Commissioners for Her Majesty's Revenue and Customs (“HMRC”) determined that none of the vehicles were “goods vehicles” for the purposes of section 115(2) ITEPA 2003 and, therefore, were not “vans” and should be classified as “cars”. They issued PAYE coding notices for 2016–7 to Messrs Garbett and Payne accordingly, and on the same basis, decided that Coca-Cola was liable for Class 1A national insurance contributions in the tax year 2011–12.
Messrs Garbett and Payne and Coca-Cola appealed to the First Tier Tribunal (Tax Chamber) (the “FTT”) which heard the three appeals together. The parties asked the FTT to determine, as a point of principle, whether or not the Kombi 1, the Kombi 2 and the Vivaro were “goods vehicles”. It seems that it was accepted that if they were not, they would fall within the definition of “cars” in section 115(1) ITEPA 2003 and the cash equivalent of the benefit would be calculated accordingly. In a decision dated 30 August 2017, the FTT decided that the Vivaro is a “goods vehicle” for the purposes of section 115(2) ITEPA 2003 but that both the Kombi 1 and the Kombi 2 are not: Payne and Others v HMRC [2017] UKFTT 0655 (TC) (the “FTT Decision”).
Coca-Cola and Messrs Payne and Garbett (together referred to as the “Taxpayers”) appealed the FTT Decision that the Kombi 1 and Kombi 2 are not “goods vehicles” and HMRC appealed the FTT Decision that the Vivaro is a “goods vehicle” to the Upper Tribunal (Tax Chamber) (the “UT”). The UT upheld the FTT's decision: Payne & Ors v HMRC [2019] UKUT 90 (the “UT Decision”). The Taxpayers now appeal the UT Decision in relation to the Kombis and HMRC appeals the decision in relation to the Vivaro once more.
Relevant Statutory Provisions
In order to understand the UT Decision and the grounds of appeal and points raised in the Respondent's Notices, it is important to have the relevant legislation in mind. ITEPA 2003 contains provisions relating to income tax on employment income, amongst other things. Section 6(1)(a) imposes a tax on “general earnings”, which is defined to include “earnings” and “any amount treated as earnings” (section 7(3)). Taxable benefits, set out in “the benefits code”, are treated as earnings (section 7(5); section 63).
The benefits code dealing with cars, vans and fuel is at Part 3, Chapter 6 ITEPA 2003. It applies where a car or van is made available to an employee by reason of employment and is available for the employee's private use (section 114(1)). The “cash equivalent” of the benefit of the car or van is to be treated as earnings (section 114(2) (a) and (c)) and is calculated differently depending upon whether the vehicle is a car or a van (sections 120 and 121; and sections 154 and 155). There is also a corresponding charge to Class 1A NICs in s.10(1) of the Social Security Contributions and Benefits Act 1992.
The provision with which these appeals are directly concerned is section 115 ITEPA 2003. So far as is relevant, it provides as follows:
“115 Meaning of “car” and “van”
(1) In this Chapter—
“car” means a mechanically propelled road vehicle which is not—
(a) a goods vehicle,
(b) a motor cycle,
(c) an invalid carriage, or
(d) a vehicle of a type not commonly used as a private vehicle and unsuitable to be so used;
“van” means a mechanically propelled road vehicle which—
(a) is a goods vehicle, and
(b) has a design weight not exceeding 3,500 kilograms,
and which is not a motor cycle.
(2) For the purposes of subsection (1)—
…
“goods vehicle” means a vehicle of a construction primarily suited for the conveyance of goods or burden of any description;…”
As I have already mentioned, the FTT and the UT were asked to decide whether the Kombis and the Vivaro are “goods vehicles” for the purposes of section 115(2).
The Decisions Below
The FTT Decision
As the criticisms of the UT Decision inevitably relate to its treatment of the FTT Decision and turn, in some cases, on the precise language used, it is necessary to set out both decisions in some detail.
Having heard evidence, the FTT made detailed findings of fact about the characteristics of the Vivaro, the Kombi 1 and the Kombi 2 respectively. They are set out at [12] – [47] of the FTT Decision. The detailed characteristics of a Vivaro are at [14] – [23] and those of the Kombis are at [24] – [39]. General findings in relation to both types of vehicle are at [40] – [47]. Those findings were helpfully summarised by the UT at [7] of the UT Decision. They provide a useful background to the submissions made to us. The summary is as follows:
“(1) The Kombi 1, the Kombi 2 and the Vivaro as used by Coca-Cola's employees at the relevant times were all based on commercially available panel vans. Coca-Cola paid a third-party specialist contractor to modify those vehicles to make them suitable for their employees' use.
(2) The commercially available version of the Vivaro was effectively divided into just two sections: a driver and passenger seat at the front, with a relatively large storage area behind. The modifications made to the Vivaro included, but were not limited to, the addition of a second row of seats (that could accommodate two passengers). A window was added next to those seats and a steel bulkhead added behind those seats so that goods being transported could not enter the passenger compartment in the event of sudden braking (see [16(2)] and [16(7)]).
(3) Thus, Coca-Cola's modifications to the Vivaro resulted in the creation of a “mid-section” (of volume around 2. 5 m3) including the additional two passenger seats that was separated from the rear cargo area by the steel bulkhead. The seats in the mid-section could be removed, but only with the use of tools. Even with the second row of seats in place, there would be around 1. 5 m3 of space in the mid-section that could be used to carry goods (see [19] and [21]) and therefore the FTT concluded at [150] that the midsection of the Vivaro was adapted for the carrying of a significant amount of cargo. A number of other modifications were made to the Vivaro.
(4) The commercially available version of the Kombi 1 already included, as standard, a bench of seats that could seat up to three passengers behind the driver and single passenger seat at the front of the vehicle. This second row of seats was fixed to tracking on the floor of the Kombi 1 but could be removed without any tools. The commercially available Kombi 1 had windows on either side of this second row of seats.
(5) Coca-Cola's modifications to the Kombi 1 included adding a central partition behind this second row of seats to separate passengers from the rear load area and to prevent loose items entering the passenger compartment if the vehicle braked suddenly (see...
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