Revenue and Customs Commissioners v Apollo Fuels Ltd and Others
| Jurisdiction | UK Non-devolved |
| Judgment Date | 26 February 2014 |
| Neutral Citation | [2014] UKUT 95 (TCC) |
| Date | 26 February 2014 |
| Court | Upper Tribunal (Tax and Chancery Chamber) |
[2014] UKUT 0095 (TCC)
Upper Tribunal (Tax and Chancery Chamber)
The Hon Mrs Justice Rose.
David Yates instructed by the General Counsel and Solicitor to HM Revenue and Customs appeared for the Appellants
Rory Mullan and Oliver Marre instructed by GBAC Ltd appeared for the Respondents
Income tax - Car leased to employee - Mileage allowance payments - Whether lease arrangement falling within Income Tax (Earnings and Pensions) Act 2003 ("ITEPA 2003"), Income Tax (Earnings and Pensions) Act 2003 section 114s. 114 - Application of ITEPA 2003, Income Tax (Earnings and Pensions) Act 2003 section 114 subsec-or-para 3 section 62ss. 114(3) and 62 - Whether NICs payable on car - Whether car is a "company vehicle" for the purpose of ITEPA 2003, Income Tax (Earnings and Pensions) Act 2003 section 236 subsec-or-para 2s. 236(2).
The Upper Tribunal (UT) have dismissed HMRC's appeal against the First-tier Tribunal (FTT) decision in Apollo Fuels LtdTAX[2013] TC 02753 that no income tax or national insurance arose in respect of cars leased to employees or mileage allowances paid finding that the car lease arrangements fell within the scope of ITEPA 2003, Income Tax (Earnings and Pensions) Act 2003 section 62s. 62 which meant that Income Tax (Earnings and Pensions) Act 2003 section 114 subsec-or-para 3s. 114(3) disapplied the car benefit charge. Additionally, the arrangements were at arm's length so there was no "benefit" in terms of advantage over what had been paid for to fall within the scope of the benefits code. As the leased cars were not "company vehicles" the corresponding mileage payments were not outside the exemption provided for by ITEPA 2003, Income Tax (Earnings and Pensions) Act 2003 section 229s. 229.
Following the 2002 changes to the rules for calculating the taxable benefit of company cars, the taxpayer group of companies stopped providing their employees with company cars and instead leased cars to them at an arm's length rental. Employees with leased cars were also paid business mileage at the same rates as employees who used their own cars for business purposes.
HMRC raised assessments on the employees in respect of the income tax due on the cars on the basis that they were taxable as company provided cars under ITEPA 2003, Income Tax (Earnings and Pensions) Act 2003 section 114s. 114 (cars made available by reason of employment) and on the mileage allowance payments on the basis that the exemption provided by ITEPA 2003, Income Tax (Earnings and Pensions) Act 2003 section 229s. 229 did not apply because the cars were "company vehicles" within Income Tax (Earnings and Pensions) Act 2003 section 229 subsec-or-para 4s. 229(4)(b). HMRC also raised assessments on the group companies for the corresponding National Insurance contributions (NICs) due.
The FTT had found that no tax and no NICs were due on either the cars or the mileage payments because the cars provided did not fall within Income Tax (Earnings and Pensions) Act 2003 section 114 subsec-or-para 1s. 114(1)(a) as "made available (without any transfer of the property in it)". There was a "transfer of property" because the leases created proprietary rights in the exclusive right to the use of the car. The UT, however, found that the FTT were wrong to conclude that the car leases created proprietary rights for the purposes of Income Tax (Earnings and Pensions) Act 2003 section 114 subsec-or-para 1s. 114(1)(a) as there was no authority to support the proposition that the lease of a chattel conferred a proprietary right on the lessee.
The UT agreed that there was no income tax or NICs due in respect of the cars but for different reasons. Firstly, Income Tax (Earnings and Pensions) Act 2003 section 114 subsec-or-para 3s. 114(3) disapplied the Income Tax (Earnings and Pensions) Act 2003 section 114s. 114 charge where "an amount constitutes earnings from the employment in respect of the benefit of the car or van by virtue of any other provision" and, in line with the principle established in Heaton v BellTAX(1969) 46 TC 211 (that a car could be converted into "money's worth" so as to fall within the definition of emoluments) the leases did constitute earnings within ITEPA 2003, Income Tax (Earnings and Pensions) Act 2003 section 62s. 62 (even if the amount chargeable was nil) which meant they were taken outside of Income Tax (Earnings and Pensions) Act 2003 section 114s. 114 by falling within another provision. Secondly, there was no actual "benefit" at all in the sense of an advantage over what had been paid for and Mairs (HMIT) v HaugheyTAX[1993] BTC 339 and Wilson v ClaytonTAX[2004] BTC 477 were authorities for establishing that fair bargains were excluded from the regime for taxing benefits. As the leases were at arm's length there was, therefore, no "benefit" to be subject to tax under ITEPA 2003, Income Tax (Earnings and Pensions) Act 2003 part 3 chapter 6Ch. 6.
The UT confirmed that the finding that there was no company car benefit within Income Tax (Earnings and Pensions) Act 2003 section 114s. 114 and so no cash equivalent within Income Tax (Earnings and Pensions) Act 2003 section 120s. 120 meant that the leased cars were not "company vehicles" within Income Tax (Earnings and Pensions) Act 2003 section 229 subsec-or-para 4s. 229(4)(b) and so the mileage allowance payments exemption within Income Tax (Earnings and Pensions) Act 2003 section 229s. 229 applied. However, the UT note that if Income Tax (Earnings and Pensions) Act 2003 section 114s. 114 had applied then the payments would not have been exempt even though the amount chargeable under Income Tax (Earnings and Pensions) Act 2003 section 120s. 120 might have been nil. The availability of the Income Tax (Earnings and Pensions) Act 2003 section 229s. 229 exemption depended on there being no "cash equivalent" treated as earnings and a nil amount was still an amount to be treated as earnings for the purposes of Income Tax (Earnings and Pensions) Act 2003 section 236 subsec-or-para 2s. 236(2)(b).
In addition to considering the application of the company car benefit charge within ITEPA 2003, Income Tax (Earnings and Pensions) Act 2003 section 114s. 114 and interaction with the earnings charge within ITEPA 2003, Income Tax (Earnings and Pensions) Act 2003 section 62s. 62, this case also examines the wider issue of whether there has to be a "benefit" in the sense of an advantage over what has been paid for in order for a charge to arise at all under the benefits code and the UT conclude that the cases of Mairs (HMIT) v Haughey and Wilson v Clayton are authorities establishing that there does. However, in terms of the application and interrelation of the actual provisions themselves, there is no requirement for a positive value to arise and an amount of nil is still an amount of "money's worth" for the purposes of Income Tax (Earnings and Pensions) Act 2003 section 62s. 62 (earnings) and "cash equivalent" to be treated as earnings within Income Tax (Earnings and Pensions) Act 2003 section 120s. 120.
The appeal of the Commissioners for Her Majesty's Revenue and Customs IS DISMISSED
[1]This is an appeal from the decision of the First-tier Tribunal (Tax Chamber) dated 12 December 2012 (Judge David Demack and Ann Christian). In that decision the Tribunal determined that the arrangements entered into by a group of companies to provide cars to their employees and to pay them mileage allowances did not give rise to any liability to tax. The Tribunal also overturned HMRC's assessment that National Insurance Contributions ("NICs") were payable in respect of the use of the cars provided and on the payments made in respect of mileage allowances.
[2]The corporate Respondents to this appeal are six companies in the Newell & Wright group. That group carries on a variety of trades and businesses including the distribution of fuel oils, transport contracting, tanker manufacturing fabrication and sales, freight forwarding and haulage, and vehicle hire and sales. I shall refer to the corporate Respondents as "the Group".
[3]The Group historically provided cars to salesmen and managers employed by its subsidiaries both as a perquisite of their employment and to enable them to carry out their duties. The cars were mainly second-hand and purchased at auction. The duties of the employees concerned included visiting new and existing customers and suppliers, delivering freight to customers, travelling between various company sites and visiting the companies' banks, accountants, etc. The annual business mileage of each of the employees concerned varied between 5,000 and 25,000 miles.
[4]From 6 April 2002 there was a change in the law relating to the taxation of the provision of company cars to employees. Before that date, employees were charged to income tax as if a sum equal to 35 per cent of the value of the car when new was added to their income, but the charge was reduced to 25 per cent for employees who travelled more than 2,000 business miles in the year, and to 15 per cent for those who travelled more than 18,000 business miles. Further, if the car were four or more years old, the tax charge was reduced by one quarter.
[5]Following the change, there was no longer any reduction in the charge to tax based on the extent of an employee's business travel or for the age of the car. Instead employees were charged to tax in the sum of 15 per cent (since reduced to 10 per cent) of the list price of the car if its CO2 emissions were below a specified figure, with an addition of 1 per cent of the value charged for each 5g/km above that figure.
[6]Following those changes, the Group decided it would move to an arrangement whereby it would lease the cars to the workforce for an arm's length hire rental. The original car provision scheme was ended in or about April 2003, and the new car...
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