In Southern Aerial Communications Ltd and Mr & Mrs Jones v HMRC [2015] UKFTT TC04692 the First Tier Tribunal (FTT) decided that there was a taxable benefit on cars taken out on HP by a company even though paid for by Mr & Mrs Jones’s partnership. The cars were provided by reason of their employment with the connected company.
- Mr & Mrs Jones were the sole shareholders of Southern Aerial Communications Ltd (the company), which provides security systems such as closed-circuit TV.
- They were also the only partners in the SAT Design Partnership (the partnership) which Mr Jones claimed was set up to “hive off” the designs which he prepared for the company. No design rights were actually registered, but the partnership received an annual fee from the company.
- The company entered into Hire Purchase agreements for two BMW convertibles. Although the company made the repayments, these were included in their accounts as being paid on behalf of the partnership. The partnership claimed the tax deduction for interest and capital allowances.
- Fuel was paid for using the partnership’s credit card.
Mr & Mrs Jones claimed that the cars were not provided to them by the company but by the partnership who bore the full cost of the agreement. They were therefore not “company cars”.
HMRC disagreed and assessed Mr & Mrs Jones for income tax and the company for Class 1A National Insurance in respect of the car and fuel benefit.
Legislation
The chapter providing for the taxation of cars applies, according to ITEPA 2003 s114(1), to a car which is:
- Available for the employee’s private use
- Made available without any transfer of the property in it to an employee
- Made available by reason of the employment
When a car benefit arises s149(1) imposes a further fuel benefit charge where fuel is provided for a car by reason of an employee’s employment.
Decision: car benefit
- There was no dispute that the cars were made available to Mr & Mrs Jones
- The FTT decided that there was no transfer of ownership. The cars were owned by the finance companies, and made available under an informal arrangement giving a right to use the vehicles.
- The FTT decided that the fact that the partnership ultimately bore the cost of the HP agreements was irrelevant. The agreements had to be taken at face value which meant that only the company was legally in a position to make the vehicles available to Mr & Mrs Jones.
- If a car is made available to an employee by a company, then it is automatically made available by reason of the employment according to s117.
- All conditions set out in s114(1) are therefore met, and a car benefit in kind arises.
Decision: fuel benefit
Fuel paid for by the partnership credit card did not give rise to a benefit as there was no actual benefit to the partners who were ultimately responsible for paying the credit card bills.
- The tribunal decided that fuel was provided for the cars on the grounds that it was paid for using the partnership’s credit card.
- However, the tribunal noted that it was Mr & Mrs Jones that were liable to pay the credit card bills and not their employer.
- The tribunal relied upon an overriding requirement in the benefits code that there is an actual benefit to the employee. Since there was no evidence that the cost of fuel was not borne by Mr & Mrs Jones, the tribunal concluded that there was no benefit to them which could fall within s149.
The tribunal therefore discharged the assessments in respect of the fuel benefit charges, but upheld the income tax and NIC charges on the car benefits.
Comment
Company cars can be a big issue for directors and their tax practitioners with a number of strategies being used to try to circumvent the benefit in kind legislation. All arrangements which are intended to mitigate car and fuel benefit charges should be carefully reviewed in the light of this and other cases to ensure that they are not caught out.
For more detail about company car and fuel benefits and calculating the charges see our Practical Tax Guides Company Cars and Car Fuel Benefit Charges and Running a LLP in tandem with a company.
Case reference: Southern Aerial Communications Ltd and Mr & Mrs Jones v HMRC [2015] UKFTT TC04692
