Employment income – car fuel for private use reimbursed to the employer retrospectively – whether taxable because not paid in the relevant year (s 158(6) Taxes Act 1988 and s 151 ITEPA 2003) – yes – appeal dismissed
THE SPECIAL COMMISSIONERS
(1) IMPACT FOILING LIMITED, (2) MICHAEL ROY
FLAY, (3) GARY JAMES PLUMB Appellants
- and -
THE COMMISSIONERS FOR HER MAJESTY'S
REVENUE AND CUSTOMS Respondents
Special Commissioner: DR JOHN F. AVERY JONES CBE
Heard on paper
Rowleys, chartered accountants, for the Appellant
Peter Death, HMRC Appeals Unit North Wales and Midlands, for the Respondents
© CROWN COPYRIGHT 2006
(1) Mr Flay and Mr Plumb were provided by the Company in the years under appeal with company cars. They purchased fuel for those cars in the first instance. They kept a mileage log which was intended to record business mileage. They completed an expenses claim monthly showing the total mileage travelled in the month, then deducted the business mileage recorded. The difference was shown as private mileage and they deducted at the rate of 15p per mile from the total spent on fuel in the month. The balance was refunded by the Company.
(2) Enquiries by the Revenue showed that the car mileage log was inaccurate in certain respects, and that private mileage was underestimated. The effect was that the Company provided fuel for both business and private travel. The full cost of private fuel was not, as a matter of fact, made good to the Company for the years concerned.
(3) On 31 January 2005 the Company invoiced Messrs Plumb and Flay the cost of fuel for the period 1 December 2002 to 31 December 2004. The amount invoiced represented all the amounts previously claimed by Messrs Plumb and Flay, not just the private element.
"If in the relevant year—
(a) the employee is required to make good to the person providing the fuel the whole of the expense incurred by him in or in connection with the provision of fuel for his private use and he does so; or
(b) the fuel is made available only for business travel;
the cash equivalent is nil."
Section 151 of ITEPA 2003 (applicable for 2003-04) provides (and incidentally I think that this is the first case in which the Special Commissioners have had to construe that Act deriving from the rewrite project, although the wording is not materially different):
"151 Car fuel: nil cash equivalent
(1) The cash equivalent of the benefit of the fuel is nil if condition A or B is met.
(2) Condition A is met if in the tax year in question—
(a) the employee is required to make good to the person providing the fuel the whole of the expense incurred by that person in connection with the provision of the fuel for the employee's private use, and
(b) the employee does make good that expense.
(3) Condition B is met if in the tax year in question the fuel is made available only for business travel (see section 171(1))."
(1) The provisions are relieving provisions which should not be interpreted harshly against the taxpayer, citing Torrens v IRC 18 TC 262, 269:
"A court cannot leave out of sight the consideration of equitable dealing and fair play, before adopting a narrow and technical construction, where a wider and generally understood meaning of a term may be applicable. It is an established principle that words of doubtful import are not to be construed as imposing burdens on the taxpayer, and it is only applying the same principle in the converse case to hold that provisions giving relief should not be construed in a harsh sense against the taxpayer."
(2) Section 158(6)(a) can be read so that there is no condition that the payment must be made in the tax year concerned. Although there is less scope for reading s 151(2) in this way both provisions should be interpreted so as not to produce a harsh result for the taxpayer, particularly where the payment is a taxable receipt of the Company.
(3) Since the Revenue have accepted that there is an obligation to make good the expense the sensible interpretation of these relieving provisions is that the employee should be allowed to do so retrospectively. It is the practice of the Revenue to interpret the legislation in this way, see Employment Income Manual at EIM 23782.
(4) A different Inspector has allowed the treatment for which they contend in another case.
(5) The result is inequitable and I should direct the parties to reach a sensible compromise.
(1) The only possible way to read the statutory provisions is that both the requirement to pay and the payment must be in the relevant tax year.
(2) Messrs Plumb and Flay have been properly charge to income tax and their appeals should be dismissed.
(3) The operation of s 10 SSCBA 1992 imposes the liability for Class 1A National Insurance Contributions on the Company and the Company's appeal should be dismissed.
(4) Rowley's other contentions are outside my jurisdiction. The Inspector in the other case made an error which cannot give rise to an expectation that the Revenue will apply the same erroneous treatment in other cases. Any application of concessions is not within my jurisdiction, but he says that the application of the concession in this case has been considered by the Head Office technical specialist, whose conclusion was that it ought not to be applied.
JOHN F. AVERY JONES
RELEASE DATE: 3 October 2006