Spc 00562

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

DECISION

1.	Impact Foiling Limited (“the Company”) appeals against a decision made on 17 August 2005 that it is liable to pay Class 1A National Insurance Contributions for the period 6 April 2002 to 5 April 2004 in respect of the benefit of the cars and car fuel for private use made available to Mr Gary James Plumb and Mr Michael Roy Flay of £2,994.86 of which £1,700.08 has been paid and so the amount in dispute is £1,294.78.  Secondly, Mr M R Flay, a director of the Company, appeals against an assessment for 2002-03 issued on 14 September 2005 for which the tax charged and in dispute is £354.40, and against an amendment to his self-assessment for 2003-04 made on the same date in which the additional tax charged is £1,696.40.  Thirdly, Mr G J Plumb, a director of the Company, appeals against an income tax assessment for 2002-03 issued on 14 September 2005 for which the tax charged and in dispute is £194.92 and against an amendment to his self-assessment for 2003-04 made on the same date in which the additional tax charged is £1,696.40.
2.	The issue in this appeal is the liability to tax and National Insurance Contributions of car fuel for private use reimbursed to the Company after the year to which it relates.
3.	Both parties made written submissions and asked me to decide the appeal on paper.
4.	The facts, which are not in dispute, are:
(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.
5.	It is common ground that Messrs Plumb and Flay were employed by the Company in an employment which fell within Part V Chapter II of the Taxes Act 1988 for years up to 5 April 2003, and which was not an excluded employment within s 216 Income Tax (Earnings and Pensions) Act 2003 from 6 April 2003.  Both were therefore liable to income tax in respect of benefits provided to them by their employer.  The provision of fuel by the employer triggers a charge to tax on the cash equivalent of the benefit (s 158 Taxes Act 1988; s 149 ITEPA).  
6.	Section 158(6) of the Taxes Act 1988 (applicable to 2002-03) provides:
“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)).”
7.	Section 10 of the Social Security Contributions and Benefits Act 1992 imposes a liability to Class 1A National Insurance Contributions.  For the period from 6 April 2002 to 5 April 2003 the liability arises where an earner is chargeable to income tax under Schedule E on an amount which is, or is treated as, an emolument received from an employment within Part V Chapter II of the Taxes Act 1988 except emoluments taken into account for the purposes of Class 1 NIC (and a payment for the provision of car fuel is excluded from earnings for Class 1).  From 6 April 2003 the liability arises in respect of general earnings chargeable under ITEPA where the employment is not an excluded employment within the meaning of the benefits code and the general earnings are not taken into account for the purposes of Class 1 NIC (and a payment for the provision of car fuel which is chargeable to income tax is excluded from earnings for the purposes of Class 1 NIC).
8.	Messrs Rowleys, for the Appellants, contend:
(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.
9.	Mr Death, for the Revenue, contends:
(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.
10.	Applying first s 158(6)(b) and Paragraph (b) of Condition A, I ask myself whether in the relevant year (or in s 151, the tax year in question), ie 2002-03 and 2003-04 the employees did make good the expense incurred by them in the provision of fuel for his private use.  The answer is clearly that they did not do so in the relevant year.  Since they fail this test it is strictly not necessary to address the earlier part, but, while the Revenue accept that they system adopted shows an intention that the employees are required to make good the expense, I have seen no evidence that they were required to make good the expense in the relevant year (or in s 151, the tax year in question).  Accordingly they fail the earlier part of the test as well.
11.	I cannot take into account Rowley’s request not to construe a relieving provision harshly against the taxpayer.  The words are plain and do not admit any other interpretation.  Nor can I take into account the concessionary treatment contained in the Employment Income Manual at EIM 23782, to the effect that payments that are treated as made within the year if they are made without unreasonable delay after the end of the year, or that they are made within 30 days of discovering an unintentional error.  No doubt these are extremely sensible administrative concessions, and it is perhaps surprising that they are not the law, but they are not, and I can only apply the law.  Nor can I take account of the treatment in another case which is not before me, and which may be wrong.  Nor is it within my power to direct the parties to reach a sensible compromise taking into account that the company has paid corporation tax on the reimbursement.  The parties could have tried to compromise before the case reached me, and for all I know may have done so, but my task is to apply the law.
12.	Accordingly I dismiss the appeals.

JOHN F. AVERY JONES

SPECIAL COMMISSIONER
RELEASE DATE: 3 October 2006

SC 3123-5/2006