PMS International Group Plc
| Jurisdiction | UK Non-devolved |
| Judgment Date | 13 August 2012 |
| Neutral Citation | [2012] UKFTT 504 (TC) |
| Date | 13 August 2012 |
| Court | First Tier Tribunal (Tax Chamber) |
[2012] UKFTT 504 (TC)
Judge Dr K Khan, Charles Baker FCA, ATII
Selwyn Walgate, Head of Tax, Mazars Accountants, appeared for the Appellant
Karen Weare, Officer of HM Revenue and Customs, appeared for the Respondents
Fuel benefits charges - Inadequate records - Whether National Insurance payable - Yes - Whether penalties for negligence in submitting returns - No - Appeal allowed in part.
The First-tier Tribunal decided that a taxpayer company was liable for Class IA National Insurance Contributions ("NICs") on car fuel benefits provided to its employees for private motoring. The system it operated for monitoring the use of the fuel benefits was not sufficiently robust to ensure a reliable reimbursement by an employee of the cost of fuel used for private purposes. The Tribunal also decided that the taxpayer was not liable to penalties under the Social Security (Contributions) Regulations 2001 ("SS Regulations 2001") (SI 2001/1004), regs. 80 and 81(1) since it was not negligent in making returns under the said regulations. Finally, the Tribunal decided that since an employee was a non-resident employee, he was not liable to Class 1A NICs for the fuel benefits by virtue of his employment whilst visiting the UK.
The taxpayer appealed against HMRC's decisions under the Social Security Contributions (Transfer of Functions, etc.) Act 1999, Social Security Contributions (Transfer of Functions, etc) Act 1999 section 8s. 8 and two penalty determinations under SS Regulations 2001, SI 2001/1004 subsec-or-para 1 regulation 81reg. 81(1). These decisions resulted from the assessment of tax on the car fuel benefits provided by the taxpayer to its employees.
The taxpayer company owned a fleet of cars which were made available to certain categories of employees. It provided fuel cards with the company cars which were used to purchase fuel and to access other benefits including roadside recovery. Not all the car drivers used the fuel card to purchase fuel. In cases where employees used their own money to purchase fuel they were reimbursed by the taxpayer from petty cash. The employees recorded their business and private mileage in a number of different ways. They were required to provide an expenses sheet with a business and private account. The calculation was done by the taxpayer for the business and for the private expenses including allocations of mileage for both categories. The employees were supposed to have provided their expenses sheets on a monthly basis, which was not always done by all employees. Some employees had their own private car and therefore showed no private use of the company car. Where an employee received a car benefit, and the private use of the car was not repaid to the taxpayer by the employee, the taxpayer would make the appropriate return on the form P11D.
On 16 January 2009, HMRC, by their officer ("Ms C"), conducted an employer compliance review of the taxpayer. The taxpayer had provided Ms C with forms for employees who had used a fuel card in purchasing fuel for the company cars. In examining the forms, Ms C noted that there were no details of business journeys, opening and closing mileage with a breakdown of business and private mileage. There was also no list of individual business journeys to support the business mileage. Ms C viewed that all employees who were provided with fuel or reimbursed fuel by the taxpayer should maintain a mileage log with details of the date and business journeys undertaken. She said that in the absence of those details it was not possible to confirm that sufficient sums had been reimbursed to the taxpayer to cover all private mileage. Therefore, fuel benefit charges could be due. She also said that those employees who had a second car for private journeys should also maintain a mileage log to confirm that fuel purchased was only provided for business journeys. She found that the records dealing with mileage fuel and reimbursement for private miles were not adequate and in some cases there were no records at all.
Between March and June 2009 there was communication between the parties with respect to a pool car which had been used by a non-resident director ("Mr B"). In March 2010, HMRC advised that computation for Class 1A NICs for 2003-04 to 2008-09 was being assessed. The taxpayer appealed the penalty determination and the Class 1A NICs charge. The case was thereafter subjected to a review which upheld the charges being taken forward formally. In December 2010, HMRC confirmed that Mr B was not resident in the UK and therefore should not have been applicable to Class 1 NICs.
The taxpayer contended that sufficient records had been kept to demonstrate that no fuel for private motoring had been provided. It contended that enquiries into their potential fuel benefits should have been put on hold until it had been established that the individuals concerned were liable to car fuel benefits. It said that it was premature to make a penalty determination as it had not yet been determined that the fuel benefits charge arose. It also said that if no benefits existed, there could be no consequent Class 1A charge. Therefore, the employees should be assessed first before any Class 1A assessment was made.
HMRC contended that a fuel benefit automatically followed from the provision of car benefits unless records demonstrated that no fuel for private motoring was provided. In order for a liability to Class 1A NICs to arise, it was not necessary for the underlying tax charge to be assessed, charged or collected. The Social Security Contributions and Benefits Act 1992, Social Security Benefits and Contributions Benefits Act 1992 section 10s. 10 requires only that an earner is chargeable to income tax under the Income Tax (Earnings and Pensions) Act 2003 ("ITEPA 2003") on an amount of general earnings. HMRC accepted that no Class 1A charge arose on the provision of a car to Mr B as he was resident in Hong Kong. They contended that the taxpayer had been negligent in submitting incorrect returns under SS Regulations 2001, SI 2001/1004 regulation 80reg. 80. Thus, penalty determinations had been raised under SS Regulations 2001, SI 2001/1004 regulation 81reg. 81 as a result of that negligence.
(2) Whether the taxpayer was liable for Class IA NICs on fuel provided to employees for private motoring.
(3) Whether the taxpayer had been negligent in submitting incorrect returns under SS Regulations 2001, SI 2001/1004 regulation 80reg. 80 in respect of Class 1A NICs.
(4) Whether the taxpayer was liable to penalties under SS Regulations 2001, SI 2001/1004 regulation 80 subsec-or-para 1 regulation 81regs. 80 and 81(1) under Class IA NICs in respect of company car and company car fuel benefits for the periods 2003-04 to 2007-08 inclusive.
(5) Whether Mr B was liable to assessment on the provision of a car available for private motoring provided to him by virtue of his employment whilst visiting the UK under ITEPA 2003, Income Tax (Earnings and Pensions) Act 2003 section 7 subsec-or-para 3s. 7(3).
Held, allowing the taxpayer's appeal in part:
The Tribunal decided that the taxpayer was liable for Class 1A NICs on fuel provided to employees for private motoring, as assessed on all the employees except those employees who had a private second car for their personal use. Whilst it would have been the best practice to have records of each individual journey undertaken by employees, there was no statutory requirement to have such records. The taxpayer had in place a system for correctly completing its annual returns for benefits in kind and for paying Class 1A NICs. A journey by journey log would have been both unnecessarily and unduly burdensome and it was understandable that such a log was not available or completed by the employee. However, evidence of Ms C showed that the conditions laid out in the taxpayer's policy statement, which would have allowed it to complete accurate returns, were not met. The employees did not understand properly how to complete the forms and to distinguish between private and business mileage. It was not shown at the hearing that there were any instructions or guidance material provided to the employees to explain how the forms were to be completed, checked or submitted.
The Tribunal held that the system operated by the taxpayer was not sufficiently robust to ensure a reliable reimbursement by the employee of the cost of fuel used for private purposes. Except those employees who owned a private second car and who stated that they had no private use because of the availability of alternative vehicles for private use, the fuel benefit charge should be applied. In cases where there was an offer of a token payment by employees with self-owned cars, that could be taken as an indication that they did not really believe that they had done anything wrong. They were merely offering a token in the mistaken belief that they would bring matters to an end. With regard to those stated employees therefore the appeal was allowed.
In respect of the second issue, the Tribunal held that the taxpayer was not negligent in making the returns under SS Regulations 2001, SI 2001/1004 regulation 80reg. 80. That regulation requires the employer to make a return of general earnings in respect of which a Class 1A contribution is payable. It also implements the Social Security Contributions and Benefits Act 1992, Social Security Benefits and Contributions Benefits Act 1992 section 10s. 10 which defines a liability to Class 1 and Class 1A contributions where "for any tax year an earner is chargeable to income tax under ITEPA 2003 on an amount of general earnings received by him from any employment " The words "chargeable to income tax under ITEPA 2003 on an amount of general earnings" identifies the amount on which Class 1A contributions are calculated. The words "is chargeable" means "is liable to be charged" and not "has been charged". Thus, the...
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