Willmott Dixon Holdings Ltd
| Jurisdiction | UK Non-devolved |
| Judgment Date | 04 January 2022 |
| Neutral Citation | [2022] UKFTT 6 (TC) |
| Court | First Tier Tribunal (Tax Chamber) |
[2022] UKFTT 6 (TC)
Nigel Popplewell
Rory Mullan QC counsel instructed by Innovation LLP, appeared for the appellant.
Akash Nawbatt QC and Joshua Carey counsel instructed by the General Counsel and Solicitor to HM Revenue & Customs, appeared for the respondents.
NICs – Were payments of car allowances to employees for making a private vehicle available for business use earnings? – Yes – If so, does the disregard in para. 7A of Pt. VIII of Sch. 3 to the Social Security (Contribution) Regulations 2001 (the Regulations) apply? – Qualifying Amounts – Must the Qualifying Amounts be Relevant Motoring Expenditure – Yes – Were the cash amounts Relevant Motoring Expenditure? – Yes – Do the disregards in para. 3 and 9 of Pt. VIII of Sch. 3 to the Contributions Regulations apply? – No – Appeal allowed to the extent of the agreed Qualifying Amounts.
The First-tier Tribunal (FTT) found that round sum car allowances were “relevant motoring expenditure” and consequently a disregard could apply in respect of the “Qualifying Amount” calculated by reference to HMRC Approved Mileage Rates.
Wilmott Dixon Holdings Ltd (Wilmott Dixon) paid fixed car allowances to various grades of employee in addition to a business mileage rate – though some of the employees receiving these allowances did not actually incur any business miles. The car allowances varied according to the grade of the employee and were not necessarily linked to their business mileage.
Wilmott Dixon applied to HMRC for repayment of National Insurance contributions in respect of years from 2004–05 to 2013–14 on the basis that the car allowances were not “earnings”. HMRC refused the applications and Wilmott Dixon now appealed.
The issues to be determined were:
- Whether the car allowances were earnings – if not, the appeal would succeed.
- If they were earnings, whether they could be partially disregarded in respect of the Qualifying Amount:whether it is necessary for allowances to be relevant motoring expenditure for the Qualifying Amount to be disregarded; and if so,whether the allowances were relevant motoring expenditure (RME) – if they were, the appeal would succeed.
- If the Qualifying Amount could not be disregarded, could an alternative disregard be applied, because either:it represented an amount necessarily incurred on business travel; orit was a specific and distinct reimbursement of expenses actually incurred.
Referring to Cheshire Employer and Skills Development Ltd v R & C Commrs [2013] BTC 1, the FTT found that because the car allowance scheme had not been constructed to reflect the overall expenditure of employees, there was an element of profit and the allowances were therefore “earnings”. Whilst a direct equivalence between expense and allowance was not necessary (or even possible in a case involving many employees with varied mileages) some equivalence with the intention to give approximately equal justice was required.
Having decided the car allowances were earnings, the FTT looked at whether a disregard could be given under Sch. 3, para. 7A to the Social Security (Contributions) Regulations 2001 (the Contributions Regulations). The FTT quickly agreed with the decision in Laing O'Rourke Services Ltd [2021] TC 08161, that for the disregard to apply, the car allowances must first be “relevant motoring expenditure” (RME).
The relevant definition of RME is contained in the Contributions Regulations, reg. 22A and in particular this required that it must be made by or on behalf of the employer “in respect of the use by the employee of a qualifying vehicle”. Disagreeing with the judgement in Laing O'Rourke Services Ltd, the FTT found that in this context “use” encompassed not just actual use but also potential use.
Applying this interpretation, the FTT found that car allowances paid by Wilmott Dixon were intended to ensure that employees had a reliable motor vehicle which was fit for performing business mileage, should they be called upon to do so. Whether they actually drove business miles was immaterial. The car allowances were therefore “relevant motoring expenditure”.
Having decided the car allowances were RME, the appeal succeeded. HMRC had already agreed with Wilmott Dixon over the “Qualifying Amount” at stake so it was not necessary to consider the calculations.
Although no longer crucial to the appeal outcome, the FTT found that because there was no relationship between the business mileage driven by employees and the amount of car allowance payable, the disregards under Schedule 3, either paragraph 3 or 9 of the Contributions Regulations would not have applied, because the car allowance did not represent, respectively, an amount necessarily incurred on business travel or a specific and distinct reimbursement of expenses actually incurred.
The appeal was allowed.
This case is notable for its interpretation of the phrase “in respect of the use by the employee of a qualifying vehicle”. Previous cases have taken this to mean actual use by the employee, but the FTT here decided that it could be broadened to include potential use.
[1] This appeal concerns National Insurance Contributions (“NICs”) and more particularly the respondents' (or “HMRC”) decision to refuse to refund class I NICs to the appellant (or “Willmott Dixon”) for the period from 2004/2005 to May 2014. Willmott Dixon claims these refunds in respect of lump sum (albeit paid by instalments) car allowance payments (the “car allowances”) paid to some of its employees during that period.
[2] HMRC's position is that these car allowances are earnings within the meaning of section 3(1) Social Security Contributions and Benefits Act 1992 (the “Act”), and that none of the disregards in part VIII of Schedule 3 to the Social Security (Contributions) Regulations 2001/1004 (the “Regulations”), and in particular those in paragraphs 3, 7A, and 9, apply. Willmott Dixon's position is that the car allowances are not earnings, but if they are, then one or more of those disregards applies.
[3] On 8 June 2021, the FTT released its decision in Laing O'Rourke Services Ltd [2021] TC 08161 (“LOR”). In that decision, Judge Bowler had considered the NIC implications of car allowance payments made by LOR to its employees and in particular whether those payments were earnings, and if so, whether the regulation 7A disregard applied. She held that the payments were earnings and that the disregard did not apply. LOR's claim for a refund of Class I NICs was therefore dismissed. At the hearing of this appeal, it became apparent that LOR had applied for permission to appeal against that decision. About a week after our hearing, I was told that Judge Bowler had given that permission. Shortly thereafter HMRC made an application that I should delay releasing my decision in this appeal until after the Upper Tribunal had released its decision in LOR. Mr Mullan provided detailed submissions as to why I should not do that, and I should release my decision notwithstanding. In the face of those submissions, HMRC withdrew their application.
[4] I am grateful to Mr Mullan and to Mr Nawbatt for their clear and helpful submissions both written and oral which have helped me considerably, and I have taken their submissions into account (along with all of the evidence) even though, in reaching my conclusions I have not necessarily referred to each and every argument and item of evidence in detail.
[5] HMRC's skeleton argument, at paragraph 6, indicated that on 7 October 2021 the appellant had provided 96 pages of additional evidence (the “96 pages”) which were to be found in the hearing bundle and that there had been no application to adduce this further evidence. HMRC invited me to exclude these documents from the evidence. It turned out that this had been sent by Innovation LLP to HMRC under cover of an email dated 7 October 2021, that email indicating that “Duncan Canney (one of the witnesses) found a laptop and we have identified these further documents which tend to corroborate his evidence and which we will be adding to the bundle. We are providing them to you now so that HMRC have plenty of time to consider them before the hearing.”
[6] On 2 November 2021 the appellant circulated a further and supplemental witness statement of Mr Graham Dundas (the “supplemental witness statement”). No formal application was made, at that time, for this supplemental witness statement to be admitted as additional evidence. At the hearing, Mr Nawbatt formally opposed the introduction of the supplemental witness statement.
[7] The first morning of the hearing, therefore, was largely taken up with submissions on these two evidential points. Having heard the submissions, I told the parties that the 96 pages and the supplemental witness statements could be admitted as new evidence in this appeal and gave brief reasons for that decision. I said that I would give fuller reasons in the decision notice and the parties submissions and my reasoning for allowing this evidence in are set out below.
[8] Mr Nawbatt submitted that the correct approach to the admission of late evidence was that in Judge Redston's decision in WM Morrison Supermarkets plc [2021] TC 08087 (“Morrisons”). There is no presumption that all relevant evidence should be admitted unless there is a compelling reason to the contrary. The correct approach is to apply the three stage process set out in Denton v TH White Ltd [2014] EWCA Civ 906, [2014] 1 WLR 3926 (see paragraph 35 of Wolf Rock (Cornwall) Ltd v Langhelle [2020] EWHC 2500).
[9] This approach is as follows. Firstly to establish the length of the delay and whether it is serious and/or significant. Secondly to establish the reasons why the delay occurred. Finally to evaluate all the circumstances of the case, using a balancing exercise to assess the merits of the reasons given for the delay and the prejudice which...
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