TC03303: P D Curtis
| Jurisdiction | UK Non-devolved |
| Judgment Date | 05 February 2014 |
| Neutral Citation | [2014] UKFTT 165 (TC) |
| Date | 05 February 2014 |
| Court | First Tier Tribunal (Tax Chamber) |
[2014] UKFTT 165 (TC)
Judge Charles Hellier; David E Williams CTA
The Appellant in person
Christine Cowan for the Respondents
Income tax - Employment income - Employment-related loans - Whether loan on ordinary commercial terms - Official interest rate exceeding normal lending rates.
The First-tier Tribunal dismissed the taxpayer's appeal, finding that he was liable to income tax on the benefit of a mortgage loan provided by a subsidiary of his then employer under the "beneficial loans" legislation in ITEPA 2003, section 175s. 175.
Mr Curtis worked for Royal Bank of Scotland (RBS) from September 2007 until December 2010. He was also a long-standing customer of NatWest which was acquired by RBS before 2008. In May 2008, Mr Curtis borrowed £309,000 from NatWest secured on his house (the first loan) and in July 2009 he borrowed a further £15,000 from NatWest on the same terms and the same security (the second loan). The interst rate was set at a fixed percentage above the bank's base rate for two years, and then reverted to the bank's standard variable rate. The mortgage offer did not require any fee to be paid. At the time Mr Curtis took out the loan, NatWest base rate was five per cent and its standard variable rate was 7.19 per cent. From March 2009 and during 2009-10, NatWest's base rate was 0.5 per cent and so Mr Curtis paid interest at 0.94 per cent.
HMRC sent a revised 2009-10 PAYE coding notice to RBS on 25 March 2010 in which a dedcution was made against his allowances in relation to the loan from his employer. It appeared that the revised coding notice arrvied at RBS too late for them to use it - given its date of 25 March 2010, 10 days before the year end and possibly a few days before the last payment of emoluments for 2009-10. Mr Curtis submitted his tax return for 2009-10 on time with no entry in relation to the loans because he thought they had been taken care of in his tax code.
The First-tier Tribunal held that the loans fell within ITEPA 2003, section 175s. 175. The first and second loans were made to an employee and were made by NatWest, a company controlled by RBS. Thus, unless any exception applied, they were employment-related loans. None of the loans on the NatWest schedule provided by the appellant bore the same low interest rate as Mr Curtis and it seemed unlikely to the Tribunal that NatWest would, at the time it made the loan available to Mr Curtis, make available to the public loans at the same rate as those which applied to his loan. It also concluded that the terms of Mr Curtis' loans as regards fees were not "comparable" with the terms which were available to all others who might be expected to borrow from NatWest. Thus ITEPA 2003, section 176 subsec-or-para (1)s. 176(1) did not apply to prevent Mr Curtis's loans from being taxable cheap loans.
It was not surprising that the taxpayer lost this case as the loans clearly fell under the beneficial loans legislation in ITEPA 2003, section 175s. 175. It was perhaps unfortunate that HMRC sent the revised coding notice too late for RBS to use it but that did not alter the fact that the taxable benefit assessed was an emolument and taxable in the year 2009-10.
[1]Mr Curtis appeals against a HMRC closure notice dated 30 March 2012 in respect of his income tax liability for 2009/10. The issue in dispute is whether, as the notice contends, he is liable to income tax on the benefit of a mortgage loan provided by a subsidiary of his then employer under the "beneficial loans" legislation in Income Tax (Earnings and Pensions) Act 2003s175 ITEPA 2003.
[2]Mr Curtis worked for Royal Bank of Scotland (RBS) from September 2007 until December 2010. He was also a long-standing customer of NatWest which was acquired by RBS before 2008.
[3]In May 2008 Mr Curtis decided to replace his existing mortgage, which was with Abbey National, with one from NatWest. He said that he was minded to change because the Abbey National mortgage was about to revert from a fixed rate to Abbey National's less favourable standard variable rate. On 14 May 2008 he borrowed £309,000 from NatWest secured on his house (this we call the first loan). In July 2009 he borrowed a further £15,000 from NatWest on the same terms and the same security (this we call the second loan).
[4]RBS have an employee help line. When Mr Curtis was thinking about changing his lender he rang the helpline and was put in contact with the group's mortgage people. He arranged the mortgage with them.
[5]His new mortgage was an interest rate tracker mortgage: the interest rate was set at a fixed percentage above the bank's base rate for the first two years or so, and then reverted to the bank's standard variable rate. The mortgage offer1 did not require any fee to be paid, noted that Mr Curtis valued his house at £570,000, and specified the following rates of interest:
NatWest base rate plus 0.44% until 30 June 2010
NatWest's standard variable rate thereafter.
[6]At the time Mr Curtis took out a loan, NatWest base rate was 5% and its standard variable rate was 7.19%.
[7]From March 2009 and during 2009/10 NatWest's base rate was 0.5% and so Mr Curtis paid interest at 0.94%.
[8]On 23 March 2010 HMRC sent a revised 2009/10 PAYE coding notice to RBS in which a deduction of £3,534 was made against his allowances in relation to a loan from his employer. It showed a resultant code of 421L.
[9]It appeared that the revised coding notice arrived at RBS too late for them to use it - given its date of 25 March 2010, 10 days before the year end and possibly a few days before the last payment of emoluments for 2009/10.
[10]On 2 July 2010 RBS sent a P11D relating to Mr Curtis to HMRC for 2009/10. This showed the receipt of taxable benefits of £10,974.43 in respect of the first loan and £192.72 in respect of the second loan, a total of £11,167.16.
[11]The 28 January 2011 Mr Curtis submitted his tax return for 2009/10. It included no entry in relation to the loans because he thought they had been taken care of in his tax code. HMRC opened an enquiry into the return on 7 December 2011 asking why the benefit reported in the 2009/10 P11 D form from NatWest had not been declared, and indicating that if it was taken into account the additional tax payable would be £4,466.80.
[12]Following some correspondence in which Mr Curtis explained the difficulty he had as a former employee of RBS in obtaining any reliable detail or explanation from his former employer of the amounts shown in the P11D, it appeared that HMRC made an amendment to his self-assessment, by including in it the benefit in kind...
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