< Go Back HMRC Lose Car Lease Benefit in Kind case at the First Tier Tax Tribunal Posted: Mar 2, 2019
Paul Harrison and Lee Solway, directors of
Harrison Solway Logistics Ltd (HSL), appealed against HMRC’s
decision; for the tax years 2010-11 to 2013-14 cars leased were company cars under s. 114(1), ITEPA 2003 and company fuel
cards given to the directors were taxable as benefits under s. 150
ITEPA 2003. See
The company also appealed against HMRC’s decision that Class 1A NICs
charges were due on the provision of the car and fuel benefits and
penalties for its failure to deliver returns of benefits provided by it
to the directors. Paul Harrison, Lee Solway, Harrison Solway Logistics Ltd and Her Majesty’s Revenue and Customs, TC06956.
HMRC argued that cars were 'made available to the directors by
reason of their employment' and without any transfer of the property in
them and they were available for private use, and therefore s. 114(1), ITEPA
2003 applied. Since company fuel cards were given to the directors who did not
reimburse HSL, benefits also arose under s. 150 - 153, ITEPA 2003.
HMRC also claimed a Class 1A NIC charge was due on HSL on the provision
of car and fuel benefits.
HMRC case hinged on their insistence that there was no transfer of proprietary interest in
the cars as it was HSL which entered into leasing agreements and there
could be no lease between the company and the directors,
because the cars always remained the property of the lessor. The lease agreements seen by HMRC precluded the transfer of
agreements to anyone else without the consent of the lessor, and there
was no evidence that any such transfer had been sanctioned. HSL had also
not imposed any requirement on the directors to pay for private use. It was argued that
R & C Commrs v Apollo Fuels Ltd & Ors  BTC 510
was not in point in this case as in Apollo there was a lease from the
employer to the employees on normal commercial terms. In contrast, in
this case HSL could not transfer the property in the vehicles to the
directors because it was prohibited from doing so. Nor had the directors
or HSL produced sufficient evidence to show that the directors paid
full market value for the cars. HMRC argued that the directors had omitted benefits in kind from
their returns and that their behaviour was deliberate so that s. 29(1)
and (4) TMA was satisfied. The tax authority disagreed that the
appellants took reasonable care because they were acting on the
professional advice of their agents.
The appellants argued that the arrangements made in
this case followed that in Apollo; there was both an oral
and an implied arrangement between the company and directors in
respect of the vehicles leased by HSL. Accordingly, property had passed
to the directors (so that s. 114(1)(a), ITEPA 2003 was not satisfied) and all costs of the vehicles had been borne by the directors
through their directors’ loan accounts, therefore, there was no benefit in kind. Amendments to s. 114 made by FA 2016 indicated that HMRC accepted ‘fair bargain’ arrangements were not within s. 114 before then as
determined in Apollo. The car fuel claim falls if no charge arises on
provision of the cars, but in any event, all
fuel costs were effectively met privately by use of directors’ loan
accounts or by ‘making good’. The directors received no financial benefit having met the
full cost of the vehicles on commercially available terms. Debits on an
overdrawn loan account represent payments as the loan account represents
an enforceable debt and was not different to any other loan.
Despite the absence of a written lease agreement between HSL and its
directors, the appellants argued that, in English contract law, the terms could be written, oral or
implied. It was always the intention that title
would pass to the directors; supplanting the lease between the company and
the lessor. This was evidenced by the passing on of all costs to the
directors and the lack of any VAT reclaim by HSL in respect of the lease
costs. The appellants argued that as there was no liability there was
no tax chargeable and there could not be any penalties. If there was tax
due, then the directors took reasonable care to make accurate returns.
They did not act deliberately, but on the advice of their previous
The First Tier Tax Tribunal (FTT) held that they could not read the decision in Apollo as confined to arrangements which amounted to hiring of goods. The judge could see no reason for not taking the directors’
loan accounts debits into account. Those debits were the amounts of the
hire purchase and rental payments made by HSL to the leasing companies. By acknowledging the obligation to pay the company these amounts
through the directors’ loan accounts the directors were paying for
precisely what HSL was able to give them and had itself paid for, the
right to use the vehicles for whatever they wished whether for HSL’s
business or for their own private purposes. There was no benefit to them in the arrangements and so s. 114, ITEPA
2003 did not apply to the provision of cars to the directors.
As there was nothing to be charged to income tax in relation to cars
and fuel, the assessments and interest fell away. However, the FTT held
that penalties on the company for failing to file a P11D(b) in time to
HMRC from benefits accruing to the directors from BUPA subscriptions
etc, under reg. 81(2) SSCR did apply. With regard to NICs, the FTT found that Class 1A NICs should have
been charged in respect of benefits other than car and fuel benefits. Thus, the income tax appeals were allowed and the NICs appeals were allowed in part.
A note of caution; changes made by FA 2016 override this decision so that, s. 114(1A)
confirms that in determining whether the rules apply to a car or van it
is immaterial whether, or not, the terms on which the car or van is made
available constitute a fair bargain but FA 2016 is not retrospective so the changes were irrelevant
in this case and a fair bargain nullified the charge under s. 114.
This case highlights the complexity of the legislation and aplication of it; a victory for the appellants but not one that would prevail now, following the changes made in FA 2016. If you're having trouble with the taxman,
contact us, in complete confidence.