Tim Norton Motor Services Ltd and Another
| Jurisdiction | UK Non-devolved |
| Judgment Date | 14 December 2020 |
| Neutral Citation | [2020] UKFTT 503 (TC) |
| Date | 14 December 2020 |
| Court | First Tier Tribunal (Tax Chamber) |
[2020] UKFTT 503 (TC)
Judge Charles Hellier
Keith Gordon instruction by Jackson & Grimes Ltd, Chartered Certified Accountants, appeared for the appellants
Christopher Vallis appeared for the respondents
Income tax – Benefits in kind – s. 114 ITEPA 2003 – Car benefit – Whether SORN meant a car was not made available for private use – No – Appeal dismissed.
Income tax – s. 29 TMA 1970 discovery assessment – Whether discovery stale – Held no – Whether there was generally prevailing practice – Held no – Whether discovery could be made in an enquiry window –s Held yes – Appeal dismissed.
Income tax – Closure notice – Whether there was a valid enquiry – Yes – Whether there was a valid discovery within s. 29(5) – Yes – Whether there was a legitimate closure notice – Yes – Appeal dismissed.
The First-tier Tribunal (FTT) held that the existence of a Statutory Off Road Notification (SORN) did not mean the vehicle was unavailable for private use and a taxable benefit still arose.
Mr Norton and his wife were both directors of Tim Norton Motor Services Ltd. The company owned two exotic sports cars (a Maserati and a Ford GT40) which HMRC considered were available for private use and accordingly raised assessments in respect of tax on Mr Norton personally and Class 1A NIC determinations against the company for the years from 2010/11 to 2016/17.
The cars were insured for Mr Norton only. They were not frequently used and between times were stored at the company's premises. The keys were kept in a locked safe to which only Mr Norton had access and when not being used, the vehicles were subject to a SORN, meaning that they could not be legally driven on public roads. In addition, the company handbook contained a provision prohibiting private use of company vehicles “without the express permission of Management”. The company contended that this meant that the vehicles were not available for private use and should not give rise to a benefit in kind for periods covered by the SORN.
The Ford GT40 was primarily used to attend various trade fairs (including one at Le Mans) and for entertainment of clients, for example taking client's children to “proms”. The Maserati was mainly used to attend business meetings. Each time the cars were used, vehicle excise duty was paid for the period and on cessation of use the cars were returned to storage and further SORNs made. The company accepted that there had been some occasional private use of both vehicles (though it was not clear precisely when) and that the cars were available during periods that vehicle excise duty had been paid, but as these periods had been declared on forms P11D, no further benefit arose.
The relevant legislation is s. 114(1) Income Tax (Earnings and Pensions) Act 2003 (ITEPA) which applies where a car or van –
- is made available (without any transfer of the property in it) to an employee or a member of the employee's family or household,
- is so made available by reason of the employment … and
- is available for the employee's or member's private use …
The principle argument of the company was that where a SORN was in place, any use of the car would have been illegal and therefore the car was not available. However, this argument was rejected. The FTT held that the SORN did not render the car unavailable because it is “easily remedied”. Mr Norton could have chosen to pay vehicle excise duty on the car at any time and then used it.
The second argument relied upon the statement in the company handbook requiring management permission. Mr Norton was a director and might have been in a position to give himself permission, but as Mrs Norton was also a director and her permission might also be needed, the FTT considered whether, referring to C & E Commrs v Elm Milk Ltd [2006] BVC 296, this amounted to “effective constraint”. The FTT thought not. Mrs Norton was highly likely to agree or acquiesce with Mr Norton's decisions and so the requirement for management permission was not an effective constraint. The cars were therefore “made available”, within the meaning of s. 114(1) ITEPA.
However, that alone is not sufficient for a taxable benefit to arise. The vehicle must not only be made available but also be available for private use and s. 118 ITEPA provides that where a car is made available (whether for business or otherwise, and in this context, any use which is not expressly business use is private) then it is to be treated as being available for private use unless:
- the terms on which it is made available prohibit such use, and
- it is not so used.
The FTT agreed that although the terms may not have proved to be an effective constraint, nevertheless those terms did prohibit private use and so in years where there had been no actual private use of the car then no benefit could arise for that year. There was some doubt about exactly when private use had occurred, but the FTT accepted that there had been no private use of the Ford GT40 in years prior to 2013/14. The Maserati had been used in all the years under consideration.
There was considerable discussion on procedural matters subsidiary to the main question. If the company failed in its main arguments that there should be no benefit in kind charge arising, then it sought several routes through which to “get off on a technicality”. These included (amongst others) that the discovery had grown “stale” through the passage of time (held that this was in part because of delays in responding to HMRC, in arranging meetings and negotiating a settlement, but throughout that time dialogue was continuing and that the discovery was therefore not stale); that the company had made returns based on generally prevailing practice concerning the meaning of “made available” which HMRC had since changed (held that the burden of proof to show such a change, which fell on the taxpayer, had not been met); and that both the discovery and the closure notice were not valid.
All these arguments were rejected, and the appeal was dismissed other than to uphold that no benefit arose in respect of the Ford GT40 prior to the tax year 2013/14.
This case draws the clear but often misunderstood distinction between “use” and “availability” of a car. It is not necessary for a car to be used in order for a benefit in kind to arise, unless there are also terms which had prohibited that use.
[1] This decision relates to: (i) an appeal by Mr Norton against “discovery” assessments and a closure notice made on the basis that a large taxable benefit in kind arose to him under Chapter 6 of Part 3 ITEPA 2003 by virtue of two cars being “made available” to him by Tim Norton Motor Services Ltd (the “Company”) and (ii) an appeal by the Company against National Insurance Contribution (“NIC”) determinations made on the same basis as the assessments on Mr Norton.
[2] The NIC determinations were for the years 2010/11 to 2015/17. The discovery assessments were made for 2012/13 to 2016/17 with the exception of 2015/16 for which a closure notice was issued.
[3] In addition to the issues relating to the application of Chapter 6, in the case of Mr Norton a number of procedural issues arise. I shall start with the car benefit issues.
[4] Section 114(1) ITEPA provides, so far as is relevant: –
(1) This Chapter applies to a car … in relation to a particular tax year if in that year the car …
- is made available … to an employee or a member of the employee's family, [Condition A]
- is so made available by reason of the employment … [Condition B], and
- is available for the employee's or member's private use [Condition C].
Where the Chapter applies the car is a benefit and later provisions provide for the amount of the benefit which is to be taxed. A director of a company is treated as one of its employees for these purposes (section 5 ITEPA).
[5] By section 117 a car which has been made available to an employee is to be treated as made available by reason of his or her employment unless one of two exceptions apply. Neither of those exceptions is relevant in these appeals. Thus for present purposes if Condition A is satisfied, Condition B will also be satisfied.
[6] I note at this stage: first, that the opening words of section 114(1) – “if in that year” rather than “during that year” – mean in my view that if Conditions A, B and C are together satisfied on one day of the tax year only, the provisions of the Chapter apply for that tax year. The possible unfairness of this approach is both indicated and mitigated by section 143, to which I shall return later.
[7] The second aspect to which I would draw attention is the apparent difference between “made available” in Conditions A and B, and “available” in Condition C. This apparent difference, however, is effectively nullified by section 116 and 118. Section 116 provides that for the purposes of Chapter 6 a car is “available to an employee at a particular time if it is then made available…to the employee or a member of the employee's family…”. Section 118 also addresses private use in the particular context of Condition C; it provides:
(1) For the purposes of this Chapter a car … made available in a tax year to an employee…is to be treated as available for the employee's … private use unless in that year –
- the terms on which it is made available prohibit such use; and
- it is not so used.
[8] The result of this is that if condition A is satisfied (by reason of the making available of the car) then condition C will be satisfied unless both of the sub paragraphs of section 118(1) are satisfied for the relevant year; and in such a case no investigation of the difference between “making available” and “available” is required for the application of Condition C.
[9] Sections 121 to 142 deal with the computation of the amount of the taxable benefit. There was no...
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