Title: (1)Chepstow Plant International Limited (2)Edward Hayward v The Commissioners for Her Majesty's Revenue & Customs [2011] UKFTT 166 (TC) (10/03/2011) ~NATIONAL INSURANCE CONTRIBUTIONS ~Liability ~~
Author: bmosedale
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Company: John Avery Jones

[2011] UKFTT 166 (TC)

TC01035

Appeal numbers TC/2009/14190
							           TC/2010/02625
Class 1A NIC – Employment-related benefit – Racehorses owned by company but held in name of director – whether interest in horses and horseracing – No – Appeals allowed – s 10 Social Security Contributions and Benefits Act 1992 – s 203 Income Tax (Earnings and Pensions) Act 

FIRST-TIER TRIBUNAL

TAX 

	(1) CHEPSTOW PLANT INTERNATIONAL LIMITED
	(2) EDWARD HAYWARD	Appellants

	- and -

	THE COMMISSIONERS FOR HER MAJESTY’S
	REVENUE AND CUSTOMS	Respondents

TRIBUNAL: JOHN BROOKS (TRIBUNAL JUDGE)
CHRIS PERRY (MEMBER)

Sitting in public at Eastgate House, Newport Road, Cardiff on 15 February 2011

David Whiscombe and David Evans of Guilfoyle Sage LLP Chartered Accountants for the Appellant

David Lewis of HM Revenue and Customs, for the Respondents

© CROWN COPYRIGHT 2011

DECISION
Introduction
1.	On 15 September 2009 Chepstow Plant International Limited (the “Company”) appealed against a decision made by an officer of HM Revenue and Customs (“HMRC”) on 14 August 2009, under s 8 of the Social Security (Transfer of Functions etc.) Act 1999, that the Company was “liable to pay Class 1A [National Insurance Contributions (“NIC”)] in respect of racehorses made available as a benefit to Mr E Hayward” in the following amounts:
Year ended 		     £
5 April 2004		2,682.88
5 April 2005		3,069.95
5 April 2006		1,530.50		
5 April 2007		2,121.47
5 April 2008		2,808.70
2.	On 17 March 2010 Mr Edward Hayward, a director of the Company, appealed against assessments issued under s 29(1) of the Taxes Management Act 1970 (“TMA”) on 19 November 2009 increasing the amount of tax charged by £8,629.60 for 2003-04; £9,852.40 for 2004-05; and £8,855.60 for 2005-06. These assessments were made on the basis that Mr Hayward was liable to pay tax on the benefit of a Company asset (the racehorses) made available for his personal use.
3.	Both the Company’s and Mr Hayward’s appeals included the following grounds: 
•	the object of the racehorses is for business purposes  ie to raise the profile of the company; and
•	Mr Hayward receives no benefit as the racehorses are not placed at his personal disposal.
4.	On 6 April 2010 the Tribunal, with the agreement of the parties, directed, in accordance with Rule 5(1) (b) of the Tribunal Procedure (First-tier Tribunal)(Tax Chamber) Rules 2009, that the two appeals “shall proceed together and be heard together at the same time by the same Tribunal.” 
Law
5.	Insofar as it applies to the present appeal, s. 10 of the Social Security Contributions and Benefits Act 1992 provides that “a Class 1A contribution shall be payable” by an employer for any tax year an “earner is chargeable to income tax under Income Tax (Earnings and Pensions) Act 2003 on an amount of general earnings received by him for any employment” which is both the “employed earners employment” and “employment within the benefits code” that for the purposes of Class 1 contributions falls to be “left out of account in the computation of the earnings paid to or for the benefit of the earner”. 
6.	Section 203(1) of the Income Tax (Earnings and Pensions) Act 2003 (“ITEPA”) provides that the “cash equivalent of an employment-related benefit is to be treated as earnings from the employment for the tax year in which it is provided.” As such earnings come within the “benefits code” (s 63 ITEPA) and are “general earnings” (s 7(3) & (5) ITEPA) and fall to be “left out of account of the earnings paid to or for the benefit of the earner” (Reg 25 and Part II schedule 3 Social Security (Contributions) Regulations 2001) a liability to pay Class 1A NIC arises on the employer providing the benefit.
7.	The cash equivalent of the benefit, which is taxable in the hands of the employee, is “the cost of the benefit less any part of that cost made good by the employee to the persons providing the benefit”(s 203(2) ITEPA) and is to be determined in accordance with s 204 ITEPA unless s 205 ITEPA provides “that the cost is to be determined in accordance with that section” (s 203(3)(a) ITEPA).
8.	For the purposes of this case the cost of an employment-related benefit is determined under s 205 ITEPA if the benefit consists of the asset “being placed at the disposal of the employee” and there is “no transfer of property in the asset” as being the annual value of the asset together with the amount of any additional expense (s 205(3) ITEPA). If s 205 ITEPA does not apply s 204 ITEPA provides that the “cost of an employee-related expense is the expense incurred in or in connection with the provision of the benefit”
9.	Section 201 ITEPA provides:
(1)	This Chapter applies to employment-related benefits. 
(2)	In this Chapter–
“benefit” means a benefit or facility of any kind;
“employment-related benefit” means a benefit … which is provided in a tax year– 
(a) for an employee, or
(b) for a member of an employee’s family or household,
by reason of his employment
(3)	A benefit provided by an employer is to be regarded as provided by reason of the employment unless–
(a) the employer is an individual, and 
(b) the provision is made in the normal course of the employer’s domestic, family or personal relationships.
10.	Benefits are not excluded if they happen to benefit the employer in addition to the employee (see eg Rendell v Went (1964) 41 TC 641). Neither are they excluded if the director or employee did not wish to have the benefit conferred on him and did not consider himself to have been benefited in any way (McKie v Warner (1961) 40 TC 65).
11.	Section 50(6) TMA provides that if, on an appeal, it appears to the Tribunal that an appellant is overcharged by an assessment the assessment shall be reduced accordingly but “otherwise the assessment … shall stand good.” In the High Court in Hurley v Taylor (HM Inspector of Taxes) (1998) 71 TC 268 Park J said at [286]:
“It is well settled by authority that [s 50(6) TMA] places the onus of discharging the assessment on the taxpayer. If the [Tribunal] having heard his case, are uncertain where the truth lies, [it] must dismiss the appeal and uphold the assessment.” 
Facts
12.	We heard from Mr Hayward and Mrs Barbara Rossiter, an Employer Compliance Officer with HMRC, and were provided with a bundle of documents which included correspondence between the parties and notes of meetings. It was clear from this evidence, with the exception of whether or not Mr Hayward had an interest in horses and horseracing, that the underlying facts were not disputed.
13.	The Company, of which Mr Hayward and his wife are 90% shareholders, is engaged in the sale and hire of heavy plant to the construction industry both within the UK and abroad. In 2008 its turnover was £18,170,400. It has 67 employees including Mr Hayward and its managing director, Mr John Corcoran, who is also a shareholder. Details of the Company’s business activities and its latest news are shown on its website. 
14.	In 1978 the Company acquired its first racehorse after being telephoned by a trainer, Mr J M Bradley, to enquire whether the Company would be interested in buying a good horse which he had in training, as its owner had got into financial difficulties. To register the horse in the Company’s name through Weatherbys, which deals with the administration of British horseracing, required the production of three years company accounts. As these were not available it was decided to register the horses in the name of Mr Hayward. However, the registered colours, of yellow and black, were those of the Company whose name appears on the horse blankets. 
15.	Further horses have subsequently been acquired and raced under Mr Hayward’s name with the acquisition and training costs and expenses being met by the Company. It is the Company which receives any income, such as any prize money won. This amounted to £382,322 between 2000 and 2010 although overall the horses were run at a loss. There is no reference to the racehorses on the Company’s website homepage.
16.	Although the horses are held in Mr Hayward’s name it is accepted by HMRC that they are assets of the Company and not Mr Hayward. 
17.	In 2008 HMRC commenced an Employer Compliance Review of the Company’s employers’ and contractors’ records and a meeting was held on 20 August 2008 which was attended by Mr Hayward and Mr David Evans of Guilfoyle Sage LLP, Chartered Accountants (“Guilfoyle Sage”) and Mr R L Pearce and Mrs Rossiter of HMRC. 
18.	The notes of the meeting prepared by Mr Pearce show that a range of issues was discussed including horseracing. These record that Mr Hayward explained that this was not a hobby of his and that the costs were met by the Company. The notes continue stating:
The horses would be purchased by J M Bradley, the trainer, who offered them to EAH [Mr Hayward] who may or may not decide to acquire them. Approximately 8 or 9 horses would be owned by the company at any time and EAH had owned one or two himself. 
19.	Following the meeting there was correspondence between the parties concerning the horses. On 3 April 2009 Guilfoyle Sage wrote to HMRC stating that “no benefit is received by Mr Hayward as the race horses are not placed at his disposal.” 
20.	In response Mrs Rossiter wrote, on 20 April 2009 that the horses were regarded by HMRC as a benefit as “Mr Hayward also owns other horses, privately, that are stabled together with the company owned horses indicating a private interest in horse racing.” The letter from Guilfoyle Sage in reply, dated 8 June 2009, concludes:
As noted in our letter dated 3 April 2009 Mr Hayward receives no benefit as the race horses are not placed at his disposal. He never rides them and rarely watches them, his main hobby being steam rallies, and if he wanted to get enjoyment from horse racing he could do that via his own horses rather than the company’s, which are not paid for or sponsored by the company. 
21.	 In her oral evidence Mrs Rossiter (of HMRC) confirmed that notes of the meeting held on 20 August 2008, although not a verbatim record, were an accurate and true recollection of what had been said. She explained that the notes were prepared by Mr Pearce and although she would have expected him to have requested Mr Hayward and his representative to confirm that this was the case she was not in a position to say whether such a request had been made or if the notes had been agreed.
22.	Mr Hayward, in giving his evidence, said that he had not been asked to confirm the notes of the meeting were correct but, had he been asked, would not have done so as he had no interest in horses or horseracing and that he had never personally owned horses and did not regularly attend race meetings. His hobby was fairground organs which he used to raise money for charity. He was also chairman of the Noah’s Ark appeal which had raised £13m over the last six years for the Children’s Hospital of Wales. He said that while he received no personal benefit from the Company’s ownership of the horses the Company did as it provided a “talking point” with its customers some of whom follow racing. When he was referred to the notes of the 20 August 2008 meeting in cross examination Mr Hayward said that he had not been asked whether they were an accurate record. He confirmed that he had no interest in horses but explained that he may have purchased a horse for the Company when it did not have the resources to do so. Also, as he had never owned horses he could not explain the reference to “his own horses” in the letter of 8 June 2009, from Guilfoyle Sage, to which we have previously referred (in paragraph 20, above).
Submissions
23.	For HMRC, Mr Lewis contended that the racehorses were assets of the Company that were made available or “placed at the disposal” of its director, Mr Hayward, for his private use to enable him to pursue his hobby of horseracing. 
24.	He referred to the fact that the homepage of the Company’s website did not mention the racehorses. He submitted that the notes of the 20 August 2008 meeting confirmed that Mr Hayward had been involved in horseracing since 1978 and even if it had been necessary for the horses to have been originally registered in Mr Hayward’s name there was no reason for this to have continued other than to indicate an active interest in horseracing by Mr Hayward which was confirmed by Mr Hayward’s personal ownership of horses as evidenced by the notes of the meeting and the 8 June 2009 letter from Guilfoyle Sage. As the registered owner of the horses it did not matter whether Mr Hayward attended race meetings because the “prestige” of owning a winner would reflect on Mr Hayward and not the Company.
25.	In addition, Mr Lewis contended that Mr Hayward, as an owner, could attend the trainer’s yard to visit the horses and watch them and take a more active involvement in their training. He submitted that the evidence confirms that the horses were placed at Mr Hayward’s disposal and clearly represented a taxable benefit to him under ITEPA which also gave rise to a liability on the Company to pay Class 1A NIC and, as such, the appeals should be dismissed.     
26.	Mr Whiscombe emphasised that Mr Hayward had given his evidence on oath and that whatever had been said at the meeting on 20 August 2008 Mr Hayward’s evidence before the Tribunal was that he had no interest in horses and horseracing and had never owned horses. He submitted that the question for the Tribunal was whether the horses which the Company owned were made available for the private use of Mr Hayward and that as there was neither use or availability of the horses, the circumstances do not give rise to any benefit to Mr Hayward. 
Discussion and conclusion 
27.	The issue for us to determine is whether as a result of the racehorses, which HMRC accept are owned by the Company, being registered in his name Mr Hayward has received a taxable employment-related benefit. If so, it would follow that, as a result of that benefit, the Company would be liable to pay Class 1A NIC. Although the definition of ‘benefit’ in the legislation as “a benefit or facility of any kind” is very wide we do not consider that this can include the ‘prestige’ of being a racehorse owner in the absence of any interest in horseracing but that the question of whether Mr Hayward has received a benefit turns on whether he has or had an interest in horses and horseracing. If he did have such an interest there is a clear benefit to him of having the horses registered in his name which would not be the case otherwise. 
28.	The evidence in support of Mr Hayward’s interest in horses and horseracing is contained in the note of the meeting of 20 August 2008, which Mrs Rossiter told us was an accurate record of what had transpired, and the 8 June 2009 letter from Guilfoyle Sage. 
29.	Against this is the evidence of Mr Hayward who told us that he had no personal interest in horses and horseracing and that he had never owned horses. Also there was no evidence before us that Mr Hayward had availed himself of any opportunity to visit the horses at their trainer’s yard and take a more active involvement in their training, neither was this put to Mr Hayward in cross examination. In addition there was no evidence that Mr Hayward had entertained customers of the Company in person at any racing event, or was present in any parade ring, or had been observed in any situation with racehorses. 
30.	As we did not hear from Mr Pearce who had attended and subsequently prepared the notes of the 20 August 2008 meeting and given that Mrs Rossiter was not able to say whether Mr Hayward had been asked whether the notes of that meeting were an accurate reflection of what had been said we prefer the evidence of Mr Hayward who categorically denied any interest in horses and horseracing. We therefore find that as he did not have any such interest he did not receive any taxable benefit by having the racehorses registered in his name and allow both his appeal and that of the Company.  
Wasted Costs 
31.	These appeals were originally listed for a hearing on 3 August 2010. However, on 13 July 2010 Guilfoyle Sage, acting for both the Company and Mr Hayward, wrote to the Tribunal requesting that the hearing be postponed until September 2010 to allow new “Tax Experts” who had been instructed to assist in the case time to negotiate with HMRC. The postponement was allowed and the parties were asked to provide dates on which they would not be available for a re-arranged hearing. In a letter of 30 July 2010 Guilfoyle Sage wrote that they would wish to avoid the two weeks “covering the 20 December 2010 to 3 January 2011. The hearing was therefore re-arranged for 1 November 2010 with the parties being notified by a letter of 12 August 2010 from the Tribunal. On 11 October 2010 Guilfoyle Sage wrote to the Tribunal requesting a postponement of the 1 November 2010 hearing on the grounds that they, and the new Tax Experts, “may have more time available to enter into negotiations with [HMRC] prior to a hearing taking place.” The Tribunal responded to this request by a letter, dated 22 October 2010, stating “this is the second request for a postponement on similar grounds and is opposed by HMRC, a Judge has decided not to grant a postponement and the hearing remains in the list for 1 November 2010.”
32.	Notwithstanding the Tribunal’s response to the postponement request on 22 October 2010 Guilfoyle Sage wrote again to the Tribunal requesting a “reconsideration” of the decision not to postpone the hearing raising, in addition to the previous reason for such a request ie hope of reaching a negotiated settlement with HMRC, an entirely new ground in that “this is the time of year when Mr Hayward, the director of the company, visits his overseas customers and unfortunately as his schedule is somewhat dictated by those customers has great difficulty  re-arranging meetings in order to attend the hearing.” This request was also refused. In an email sent to Guilfoyle Sage on 25 October 2010 the clerk to the Tribunal explained that the matter had been referred to a Judge who had instructed him to reply as follows:
The date for the hearing was notified in mid August, and as such the parties knew they would need to be available. The Judge sees no reason to vary the decision to refuse the postponement. The appeal will remain in the list for 1 November 2010.
33.	When the appeal came before us, on 1 November 2010, Mr David Evans, of Guilfoyle Sage, made an application for an adjournment on the grounds that Mr Hayward (who was not present) was unable to attend the hearing as he was in the Caribbean to meet with clients. Mr Evans explained that he had been told by Mr Hayward in August 2010, when the parties had been notified of the hearing date, that he would not be able to attend the hearing on 1 November 2010 but had forgotten to inform the Tribunal of this. As it appeared that it would be difficult for us to deal with the case fairly and justly in the absence of Mr Hayward’s evidence we reluctantly granted the further adjournment. We considered that Guilfoyle Sage had, through Mr Evans acted unreasonably in the conduct of the proceedings as he had been aware of Mr Hayward’s unavailability since the middle of August 2010 but had waited until the morning of the hearing to inform the Tribunal. In the circumstances we directed HMRC to provide a schedule of their costs of and incidental to the adjourned hearing by 29 November 2010. We also directed that Guilfoyle Sage be given an opportunity, in accordance with Rule 10(5) of the Tribunal Procedure (First-tier Tribunal) (Tax Chamber) Rules 2009, to make representations “immediately prior to the re-listed hearing of these appeals” as to why we should not make a wasted costs order against the firm.
34.	HMRC provided a costs schedule to the Tribunal on 26 November 2010 setting out its costs for the hearing listed on 1 November 2010. Before the commencement of hearing these appeals we invited the representatives from Guilfoyle Sage to make representations. However, Mr Evans explained that they accepted liability for HMRC’s wasted costs of the adjourned hearing and did not intend to make any representations. We therefore direct: 
(1)	The Respondents wasted costs of the adjourned hearing in these appeals which were listed for 1 November 2010 are summarily assessed in the sum of £1,327.70.
(2)	Guilfoyle Sage shall, within 28 days of the release of this decision, pay the Respondents £1,327.70.
35.	This document contains full findings of fact and reasons for the decision. Any party dissatisfied with this decision has a right to apply for permission to appeal against it pursuant to Rule 39 of the Tribunal Procedure (First-tier Tribunal) (Tax Chamber) Rules 2009.   The application must be received by this Tribunal not later than 56 days after this decision is sent to that party.  The parties are referred to “Guidance to accompany a Decision from the First-tier Tribunal (Tax Chamber)” which accompanies and forms part of this decision notice.

JOHN BROOKS
TRIBUNAL JUDGE
RELEASE DATE: 10 MARCH 2011