Southern Aerial (Communications) Ltd and Others
| Jurisdiction | UK Non-devolved |
| Judgment Date | 28 October 2015 |
| Neutral Citation | [2015] UKFTT 538 (TC) |
| Date | 28 October 2015 |
| Court | First Tier Tribunal (Tax Chamber) |
Judge Richard Thomas, Susan Hewett OBE
Mr Peter Dawson of Murray McIntosh O'Brien, Chartered Accountants, appeared for the Appellants
Mrs Anne Rees, Presenting Officer, appeared for the Respondents
Income tax & National Insurance contributions – Income Tax (Earnings and Pensions) Act 2003 (ITEPA 2003), Pt. 3 benefits code for cars and fuel – Class 1A NICs – Whether cars made available by employer or, if not, by reason of employment – Yes – Whether provision of fuel a benefit – No – Apollo Fuels followed – NICs determination on wrong person – Appeals dismissed in relation to cars and allowed in relation to fuel.
The First-tier Tribunal (FTT) allowed in part Mr and Mrs Joneses appeal against discovery assessments raised in respect of car and fuel benefits and also in part the appeal by Southern Aerial (Communications) Ltd (the company) against Class 1A National Insurance determinations in respect of the same benefits. The FTT found that the assessments and determinations in respect of the car benefits stood because the cars were made available to the Joneses by reason of their employment with the company under the Income Tax (Earnings and Pensions) Act 2003 (ITEPA 2003), s. 114, however, as the fuel costs were paid for by the Joneses through their partnership, there was no benefit in economic terms and as this was an overriding requirement in ITEPA 2003, Pt. 3 there could be no fuel benefit within ITEPA 2003, s. 149.
Southern Aerial (Communications) Ltd (the company) was a company wholly owned by Mr and Mrs Jones who were also the company's only directors. The Joneses had set up a partnership, the SAT Design Partnership (SAT), to receive fees from the company in respect of design work undertaken by Mr Jones and administrative work undertaken by Mrs Jones. The partnership also bore the costs, by way of a recharge by the company, of two cars used by Mr and Mrs Jones. HMRC raised discovery assessments on Mr and Mrs Jones charging them to income tax on the car and fuel benefits under ITEPA 2003, Pt. 3, Ch. 6 and issued determinations that the company was liable to pay Class 1A National Insurance contributions on the same benefits. Mr and Mrs Jones appealed the assessments and the company appealed the determinations.
The FTT found as facts that the company had entered into the hire purchase (HP) agreements in respect of both cars and that the company had paid the monthly HP payments and re-charged the amounts to an account with SAT; the use of both cars was mainly personal; and fuel and other running costs had been paid for by use of SAT's credit card which had been paid from SAT's bank account.
The FTT noted that ITEPA 2003, s. 114 charges tax on the cash equivalent of the benefit of the availability of a car (irrespective of who makes the car available) where two further conditions are satisfied: (i) the making available is without a transfer of any property in it (the car), and (ii) the car is made available by reason of the employment of that employee. The FTT further noted that ITEPA 2003, s. 117 provided an irrebuttable presumption that if an employer makes a car available to an employee then that car is made available by reason of the employment of that employee.
The FTT found that the commercial arrangements through which the partnership bore the costs of the monthly HP payments did not override the effect of the HP contracts and as it was the company who entered into these contracts, the company was the only person in a position legally to make the cars available. Accordingly, ITEPA 2003, s. 117 applied and the by reason of employment test was presumed passed.
The FTT further found that the property in the cars in the sense of ownership did not belong to the company but to the finance companies as was abundantly clear from the HP contracts. Accordingly, the making available in this case did not transfer any proprietary right whether in the car or just rights under the HP contract.
Accordingly, the cars were made available by the company, and therefore made available by reason of employment, without any property in the cars passing to the appellants, so ITEPA 2003, s. 114 applied and the appeals failed. The FTT continued, however, that even if wrong about ITEPA 2003, s. 117 applying, the cars were nevertheless made available by reason of the Joneses employment with the company because, following Cooper TAX[2012] TC 02120 and Oliver LJ's question: what is it that enables the person concerned to enjoy the benefit? in the joint cases of Wicks v Firth (HMIT); Johnson v Firth (HMIT) TAX[1982] BTC 134, even if SAT were the entity making the cars available, that was done by reason of the Joneses' employments as directors of the company.
In the case of the fuel paid for by the partnership's credit card the FTT found that this was a credit-token within ITEPA 2003, s. 149(3)(b) which deemed it to be fuel provided for the purposes of the s. 149(1) charge to tax. However, as the liability to pay for the fuel and credit card bills fell on the Joneses (albeit in partnership), not their employer, in line with Apollo Fuels Ltd TAX[2013] TC 02753, there was no benefit in economic terms which was an overriding requirement of the benefits code in ITEPA 2003, Pt. 3. Accordingly, although this was sufficient to decide the fuel issue in the appellant's favour, the FTT noted that even if they had not so found, they would have allowed the appeal in respect of the Class 1A determinations (alone) because the Social Security Contributions and Benefits Act 1992 (SSCBA 1992), s. 10ZA imposed the liability on the person who provided the fuel, which in this case was SAT not the company on whom the determinations had been made.
In summary, therefore, the discovery assessments under the Taxes Management Act 1970, s. 29 and the decisions under the Social Security Contributions (Transfer of Functions, etc.) Act 1999, s. 8 were to be reduced by the amounts relating to the fuel benefits.
In this case, Mr and Mrs Jones had set up a partnership to hold cars for the Joneses outside their company with a view to avoiding income tax under the car benefits code in ITEPA 2003 and Class 1A NICs. The FTT found that the arrangements failed in respect of the car benefits because the cars were made available by reason of the employment of the Joneses as directors of the company but succeeded in respect of the corresponding fuel benefits because the liability to pay for the fuel fell on the Joneses (in partnership) and not on their employer. This case examines the operation of ITEPA 2003, s. 114 and whether cars are made available by reason of the employment, including the irrebuttable presumption in ITEPA 2003, s. 117 that cars are so made available when made available by the employer. This case also considers the relevant case law including, in particular, the Court of Appeal decision in the joint cases of Wicks v Firth (HMIT); Johnson v Firth (HMIT) TAX[1982] BTC 134.
[1] This was an appeal by Southern Aerial (Communications) Ltd (the company) against determinations that the company was liable to pay National Insurance Contributions (NICs) of Class 1A, and appeals by Mr and Mrs Jones (the Joneses) against assessments made under 29 Taxes Management Act 1970 (TMA) charging them to tax on earnings. (We refer to the company and the Joneses together as the appellants). The determinations and the assessments relate to the same matters, that is whether there were benefits chargeable on the Joneses in respect of cars and the fuel for those cars. They also covered other benefits in respect of which there is no appeal.
[2] The amounts and years involved are:
Tax Year |
Car benefit NICs |
Fuel benefit NICs |
2007–08 |
4690 |
1253 |
2008–09 |
4860 |
1514 |
2009–10 |
4860 |
1514 |
Tax Year |
Car benefit NICs |
Fuel benefit NICs |
2007–08 |
21887 |
4750 |
2008–09 |
23219 |
5915 |
2009–10 |
23219 |
5915 |
Tax Year |
Car benefit NICs |
Fuel benefit NICs |
2007–08 |
14754 |
5040 |
2008–09 |
14754 |
5915 |
2009–10 |
14754 |
5915 |
[3] The issues for decision by the Tribunal were whether two BMW cars were made available to the Joneses (one car to each of them) by the company or, if not by the company, by reason of their employment with the company, and whether fuel for the cars was provided to them by reason of their employment.
[4] We decided that the determinations and assessments so far as they relate to the car benefits should be confirmed, but so far as they relate to the fuel benefits should be varied to exclude those benefits.
[5] We had a bundle of documents prepared by the Commissioners for Her Majesty's Revenue and Customs (HMRC). This consisted of the correspondence between the parties and the documents that had been attached to that correspondence. We also had the Appeal Form sent to the tribunal.
[6] Oral evidence was given by Mr Trevor Jones, an appellant and a director of the appellant company, and by Mr Stephen Murray, a Chartered Accountant and senior partner of the firm which has advised the appellants. They were cross-examined by Mrs Rees and asked questions by the Tribunal.
[7] The charge to tax on car benefits is found in Chapter 6 of Part 3 of the Income Tax (Earnings and Pensions) Act 2003 (ITEPA), and that Chapter forms part of what is called in that Act the benefits code. Section 114 ITEPA relevantly provides:
(1) This Chapter applies to a car … in relation to a particular tax year if in that year the car … –
a) is made available (without any transfer of the property in it) to an employee …,
b) is so made available by reason of the employment (see section 117), and
c) is available for the employee's or member's private use (see section 118).
(2) Where this Chapter applies to a car … –
a) sections 120 to 148 provide for the cash equivalent of the benefit of the...
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