[2011] UKFTT 324 (TC)
TC01184
Appeal number: TC/10/06907
Income
Tax – Income Tax (Earnings and Pensions) Act 2003 – Car Fuel Benefit Charge –
whether car fuel charge due on company owned motor car used for private use –
whether sufficient evidence to prove that fuel costs incurred by the company
were for business use only or that any private use element was reimbursed –
Appeal dismissed.
FIRST-TIER TRIBUNAL
TAX
JAMES
BUCHAN LITTLE Appellant
-
and -
THE
COMMISSIONERS FOR HER MAJESTY’S
REVENUE
AND CUSTOMS Respondents
TRIBUNAL JUDGE: W Ruthven Gemmell, WS
MEMBER: Charlotte
Barbour, CA, CTA
Sitting in public in George
House, 126 George Street, Edinburgh on 14 April 2011
James B Little, for the
Appellant
William Kelly, for the
Respondents
© CROWN COPYRIGHT
2011
DECISION
Introduction
1. This is an
appeal by James Buchan Little (“JBL”) against assessments in respect of car
fuel benefit issued by the Commissioners of HM Revenue and Customs (“HMRC”) for
the tax years 2005-06 and 2006-07 with tax due respectively of Ł2217.88 and
Ł2,242.80 making a total of Ł4,460.68 plus interest and penalties. The amended
assessments were issued on 10 July 2009 following an HMRC enquiry into JBL’s 2006-07 self assessment return.
2. JBL claimed that a Porsche Carrera S motor car which was owned by his company, Northside
Precision Tooling Limited (“NPT”), was for his private use only and no fuel was
provided for it by NPT and, consequently, no tax was payable on car fuel
benefit.
3. JBL gave evidence and was credible.
Legislation
4.
Income Tax (Earnings and Pensions) Act 2003 (“ITEPA”) -
Section 149
Benefit of car fuel treated as earnings –
(1)
If in a tax year—
(a)
fuel is provided for a car by reason of an employee's employment, and
(b)
that person is chargeable to tax in respect of the car by virtue of section
120,
the cash
equivalent of the benefit of the fuel is to be treated as earnings from the
employment for that year.
(2)
The cash equivalent of the benefit of the fuel is calculated in accordance with
sections 150 to 153.
Section 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)).
5.
Taxes
Management Act 1970 -
Section 12B
Records to be kept for purposes of returns –
(1)
Any person who may be required by a notice under section 8, 8A. . .
or 12AA of this Act . . . to make and deliver a return for a year of
assessment or other period shall—
(a)
keep all such records as may be requisite for the purpose of enabling him to
make and deliver a correct and complete return for the year or period; and
(b)
preserve those records until the end of the relevant day, that is to say, the
day mentioned in subsection (2) below or, where a return is required by a
notice given on or before that day, whichever of that day and the following is
the latest, namely—
(i)
where enquiries into the return . . . are made by an officer of the
Board, the day on which, by virtue of section 28A(1) or 28B(1) of this Act,
those enquiries are . . . completed; and
(ii)
where no enquiries into the return . . . are so made, the day on
which such an officer no longer has power to make such enquiries.
Section 29
Assessment where loss of tax discovered
(1)
If an officer of the Board or the Board discover, as regards any person (the
taxpayer) and a [year of assessment]—
(a)
that any [income which ought to have been assessed to income tax, or chargeable
gains which ought to have been assessed to capital gains tax,] have not been
assessed, or
(b)
that an assessment to tax is or has become insufficient, or
(c)
that any relief which has been given is or has become excessive,
the officer
or, as the case may be, the Board may, subject to subsections (2) and (3)
below, make an assessment in the amount, or the further amount, which ought in
his or their opinion to be charged in order to make good to the Crown the loss
of tax.
Cases Referred To
Haythornthwaite (T) & Sons Ltd v Kelly (Inspector
of Taxes), (1927) 11 TC 657;
Norman v Golder (Inspector of Taxes) [1945] 1 All ER
352;
Nicholson v Morris (Inspector of Taxes) [1977] STC162.
The Facts
6. The
following facts were found:-
7. JBL and his wife own the company NPT, which purchased a number of motor cars including a Subaru
sometime in 2000 that was subsequently bought by JBL from the company on or
about June 2005, a Renault Megane used primarily by JBL’s wife, Mrs Helen
Little (“HL”), and a Porsche Carrera S (“the Porsche”) which was first
registered on 28 March 2005 and was purchased at a cost to NPT of Ł69,499.
8. In the tax
years 2005-06 and 2006-07 there were two company cars provided for the
directors of NPT, JBL and HL, being the Porsche and the Renault.
9. From 2005 JBL used the company provided Porsche for private use and the privately owned Subaru for business
purposes.
10. At an Employer Compliance
Review meeting between HMRC and NPT, JBL and HL on 19 August 2008, HMRC made enquiry of the company cars which had been returned on P11D Forms in respect of
fuel benefit which had not been returned.
11. Fuel had been paid for by
use of the NPT company credit cards. HMRC explained that where a company car
was provided and fuel was provided then a charge for fuel benefit follows
automatically “unless the employer can demonstrate that no fuel whatsoever is
provided for private use or that the cost of all fuel provided for private use
is made good to the company”.
12. At the meeting HL stated
that she did not realise NPT had to return the fuel benefit to HMRC. She
stated that when previously she had driven her own car on business she had kept
fuel records but had not done so since she had been given a company car. JBL stated that in his pre-2005 use of the Subaru he also kept records and claimed that all
business use was paid for by the company and that a record was made of all
private use which was made good to the company.
13. HMRC reminded JBL and HL that they may be due to pay tax on their own benefits.
14. By subsequent voluntary
monetary settlement agreement between NPT and HMRC, dated 27 October 2008, NPT
accepted that Class 1A National Insurance Contributions on fuel provided to the
Renault and Porsche for a sum of Ł4,350 in respect of the period from 2003-04
to 2007-08 were payable. This was paid and settled in full.
15. The provision of the
Porsche, for which a fuel benefit charge is the subject of this appeal, was
shown on Forms P11D for years 2005-06, 2006-07 and 2007-08 but included no fuel
charges.
16. Capital allowances had been
claimed by NPT on the Porsche and Renault.
17. The Renault and HL, whose
personal liability was settled, are not the subject of this appeal.
18. HMRC wrote to JBL’s accountant on 16 December 2008 stating that a car fuel benefit had been identified as not
fully declared on JBL’s tax return and as his employer NPT was unable to
provide records to show that the fuel was not available for private use “the
fuel benefit applies”.
19. JBL’s accountant replied on
14 January 2009 that the vehicle was a “recreational vehicle” used by JBL and that any fuel used by him was paid personally.
20. HMRC responded on 21 January 2009 asking what arrangements were in place to ensure that no fuel was provided
for business use for the Porsche and asking for documentary evidence to support
this. HMRC also asked what happened when the Subaru was not available for
business use, e.g. in the garage being serviced, if JBL needed a car for
business use.
21. HMRC also asked what
happened if JBL was called out from his home on business purposes and the
Porsche was the only car available to him.
22. On 23 April 2009, HMRC wrote to JBL’s accountant stating that NPT could not demonstrate that no fuel
was paid for the Porsche nor whether the fuel was either for business or
private use. HMRC stated “the fuel scale charge follows the car benefit
automatically where fuel is provided unless it can be shown that none was for
private use or that the cost of any private use was made good. Although your
client may have a system in place now to show this for the tax years under
enquiry, no such evidence was produced”.
23. On 23 June 2009, JBL’s accountant stated that JBL’s position was that no fuel was paid in connection
with the Porsche from company funds and accepted that the full fuel scale
charge followed automatically unless it could be shown that none was for
private use or that the cost of private use was made good.
24. In response on 10 July, HMRC
stated that “it boils down to the fact the company cannot demonstrate that no
fuel whatsoever was provided for private use”.
25. On 28 July 2009, JBL stated that the Porsche required a particular premium unleaded fuel, that there were no
company credit cards statements showing the purchase of this type of fuel and
that they all showed the purchase of normal unleaded fuel. JBL stated that “it would therefore be reasonable to conclude that all fuel purchases were made
without the use of the company credit cards”.
26. In response on 14 August 2009, HMRC stated that they did not believe the type of petrol used was relevant
as they felt a manufacturer’s handbook of a car is always likely to suggest
using top of the range products to ensure best performance but that did not
mean it would not run on poorer quality products.
27. On 2 September 2009, JBL stated that the model of the Porsche, which was more expensive than the standard model, could
only achieve maximum performance by using super unleaded fuel and as the reason
for buying the more expensive model was to obtain maximum performance and it
would be counter productive to have used normal unleaded fuel. On 22 September
2009 HMRC wrote stating that the Porsche was returned as a company car on JBL’s P11D and in the company accounts and again asking for documentation to demonstrate that no
private fuel was paid through or by the company. HMRC stated that detailed
mileage records and receipts should have been kept to demonstrate that all
private fuel was reimbursed and made reference to the Income Tax (Earnings and
Pensions Act) 2003.
28. A review by HMRC of its
decision took place on 18 February 2010, the conclusion of which was a
reiteration of HMRC’s view that JBL had been unable to demonstrate that he had
made good the fuel or that fuel was made available for business travel only.
29. The review stated that NPT
had paid Class 1A National Insurance Contributions on the fuel benefit in
respect of the vehicle, that no company credit card receipts or statements had
been produced to show that premium unleaded fuel which JBL stated was required
and that no private bank or credit card statements or fuel receipts had been
produced showing fuel payments made in cash or that higher octane fuel had been
purchased.
30. There was further
correspondence between JBL and HMRC but no evidence was provided to support JBL’s position.
31. JBL made reference to HMRC
guidance and, in particular, to a document EIM230000/Technical Guidance on the
Car Benefit Charge which states under Car Fuel –
“What to Report
What to pay for employees
earning at a rate of less than Ł8,500 per annum
You have no reporting
requirements or no tax or NICs to pay. Unless one of the exceptions below
applies.
For company directors or
employees earning a rate of Ł8,500 or more per year you must -
Report on Form P11D – Section
F
Pay Class 1A National
Insurance Contributions on the value of the fuel benefit.
Amongst exceptions it stated -
For Company Directors or
employees earning at or above the Ł8,500 rate you have no reporting
requirements and no tax or national insurance to pay if either of the following
applies:-
They buy their own fuel for
private use (see below for the definition of this)”
Submissions from HMRC
32. HMRC say that the burden of
proof lies on JBL, to prove that the HMRC assessment is wrong following Lord
Greene’s judgement in Norman v Golder which in turn refers to Lord
Hanworth in T Haythornthwaite & Sons Limited v Kelly where he says
“hence it is quite plain that the Commissioners hold the assessment standing
good unless the subject, the Appellant, establishes before the Commissioners by
evidence satisfactory to them, that the assessment ought to be reduced or set
aside. Reference is also made to Mr Justice Walton in Nicholson v Morris
who said “it is the duty of every individual tax payer to make his own return
and if challenged to support the return he has made”.
33. HMRC say that the Porsche on
the P11D form for JBL is shown in NPT’s accounts as an asset and that NPT
agreed that a fuel benefit arose in respect of JBL and, consequently, agreed to
pay Class 1A National Insurance Contributions arising from the years 2003-04 to
2007-08 for the Porsche car, a liability which was settled in full.
34. HMRC say that capital
allowances were claimed for the Porsche car and that it is a requirement for a
claim for capital allowances that the asset is used in the business.
35. HMRC say that they and NPT’s
accountant accept that a fuel charge will follow automatically if it cannot be
shown that either no private fuel was provided or that the cost of private fuel
was made good.
36. HMRC refer to Sections 149
and 151 of ITEPA 2003.
37. HMRC say that JBL produced no evidence to show that the fuel purchased by the company was not used in the
Porsche, that the fuel benefit charge must apply and as there is no record of
reimbursement of fuel for private use, the reduction under Section 151 ITEPA
2003 does not apply.
38. HMRC say that on the balance
of probabilities fuel has been supplied to the Porsche vehicle and that JBL is trying to mitigate his charge to tax; that JBL is a controlling director and wanted his
company to buy the Porsche as he did not have sufficient funds outwith his
company to do so; that NPT treated this as an asset of the business and it
appeared on NPT’s balance sheet and was a subject of a claim for capital
allowances which requires business use to be made.
39. HMRC say that JBL accepts that there has been a car benefit but is asking the Tribunal to accept that no fuel
is supplied by NPT and that he supplied his own fuel but has no records to
support either of these statements.
40. In consequence, HMRC request
that the appeal is dismissed.
Submissions from JBL
41. JBL stated that the only car
he used for business use since 2005 had been the Subaru and that the Porsche
was not used for business use.
42. The principal reason for
this was that the Porsche was bought as a “personal indulgence” and was used
for pleasure and to drive to and from work. JBL said that it was too
ostentatious to use the Porsche to visit clients and that it would be
insensitive to do so.
43. JBL says that all business
use was therefore carried out in the Subaru and that all private use was
carried out in the Porsche.
44. JBL explained that the
Porsche had been purchased by the company as he had insufficient funds of his
own to do so.
45. As a consequence of this
pattern of usage, there was little use of the Porsche for any purposes and
evidence was submitted to show the mileage of the car from the Porsche car
logbook. Added to this, was JBL’s claim that the fuel charge for the car was
in the region of Ł700 per annum which JBL says is consistent with the Porsche
being used for private use and having in reality a considerably lower rate of
fuel consumption than that used for calculating the assessments under appeal.
46. JBL says that the decision
by NPT to pay Class 1A National Insurance Contributions on the fuel benefit for
the Porsche was a mistake but accepts that the car benefit of the Porsche
correctly appeared on the P11D although it was not correctly identified as the
S model which required super unleaded fuel.
47. JBL says in view of the low
mileage and modest amount of expenditure on fuel it was not practical to keep
receipts and that no fuel was supplied by the company for the Porsche.
48. JBL referred to the guidance
which was referred to in his letter of 21 July 2010 which he understood to mean that he did not need to make returns to HMRC in relation to the fuel charge
because JBL bought his own fuel for private use and the private use fitted the
definition given in the guidance.
49. JBL moved that the Appeal be
allowed.
Reasons for the Decision
50. The issue before the
Tribunal was whether the tax charge for fuel benefit on the Porsche was due in
terms of Section 149 ITEPA 2003 and, if so, whether the reduction in the charge
under Section 151 ITEPA 2003 would apply and, accordingly, to the strength of
evidence.
51. The burden of proof rests
with JBL to prove that HMRC’s decision is wrong.
52. The Tribunal accepted that
the Porsche car belonged to NPT, that it was a company asset on which capital
allowances had been obtained yet it was claimed there was no business use.
53. The Tribunal accepted that JBL had arranged the purchase of the Porsche through the company as this was a means of financing
its purchase that might not otherwise have been possible and noted that JBL accepted that the provision of the car was taxable as a benefit and was returned on the P11D
and tax was paid.
54. JBL stated that there was
only private use and the Tribunal accepted this evidence.
55. This therefore left the
issue of the fuel charge which had not been included in the P11D forms.
56. The Tribunal accepted that
where ownership of the car belonged to the company, the fuel charge followed in
terms of Section 149 of ITEPA 2003.
57. The next step was for the
Tribunal to consider whether the benefit would be at a nil rate under Section
151 ITEPA 2003 which required Condition A or B to be met, Condition A required JBL to make good to NPT the whole expense of NPT providing any fuel in connection with the
provision of JBL’s private use and for JBL actually to make good that expense.
58. Condition B would be met if
the fuel was only made available for JBL’s business use and as there was no
such use this did not apply.
59. The Tribunal were persuaded
by the evidence that NPT accepted that there was a fuel charge applicable to
the Porsche car under a signed declaration that this was payable because “of
the failure of the company to meet all its obligations under the relevant acts
and regulations” in a document signed by Mrs Little on behalf of the company on
27 October 2008.
60. The Tribunal were not minded
to accept that this act and payment were erroneous. The Tribunal therefore
were of the view that a fuel charge did attach to the use of the Porsche and
noted that this had been accepted by JBL’s accountants.
61. The Tribunal considered
whether the car fuel benefit charge applied automatically because fuel is
provided for a car that is made available for private use to an employee who is
not in excluded employment. The legislation provides that the charge applies
automatically where fuel is provided for the car and places the onus on the
taxpayer to prove a negative, that is to say, that no fuel is provided for the
car. Albeit that it may be difficult to do so, this is what must be done to
shift this presumption. In relation, therefore, to the position where fuel for
cars is being paid for by company credit cards, detailed records must be kept
not only of the business mileage but also of any private use to also ascertain
whether or not the nil rate applies.
62. The Tribunal noted that JBL had stated this was the procedure he had followed when using the Subaru during its period of
ownership by NPT.
63. It was not clear against
this background why JBL should be unaware of the importance of keeping such
records and or being unable to produce these to HMRC when demanded.
64. JBL stated that no fuel was
made available for the Porsche for business use but there was no evidence to
support this claim, nor was there evidence from NPT that the fuel purchased
using company credit cards was used exclusively for business purposes.
Accordingly, the Tribunal found that the JBL did not meet the tests to result
in the car fuel benefit charge being at a nil rate.
65. The Tribunal considered the
arguments put forward by HMRC and JBL in relation to the use of premium
unleaded fuel and normal unleaded fuel but were unable to draw any conclusions
from this as no credit card receipts or statements were available to confirm
which fuel was used in which car and so to corroborate JBL’s statement that the
Porsche required premium unleaded fuel.
66. No evidence was shown in the
form of private bank or credit card statements or fuel receipts in respect of
the fuel payments made in cash nor was there evidence that the premium unleaded
fuel was always purchased for the Porsche.
67. The Tribunal noted the position
of JBL in relation to receiving a car fuel benefit charge for an amount which
appears to be in excess of the estimated likely actual fuel cost of Ł700 per
annum and of his understanding from the HMRC guidance that no reporting
requirements and no tax or national insurance contributions would be payable if
the taxpayer bought their own fuel for private use.
68. This guidance, however,
relates to reporting requirements which are not the same as the requirements to
keep proper records “as may be requisite for the purpose of enabling the
taxpayer to make and deliver a correct and complete return for the year or
period”.
69. The Tribunal
were of the view that the acceptance by the company for a liability of Class 1A
National Insurance Contributions on the fuel charge for the Porsche motor car,
the lack of receipts, records or any similar evidence to establish that no fuel
was supplied by NPT and that if it was, it was made good to NPT, had the effect
of invoking the statutory charge to which the nil cash equivalent provisions
did not apply. Accordingly, the appeal is dismissed.
70. 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.
W RUTHVEN GEMMELL, WS
TRIBUNAL JUDGE
RELEASE DATE: 16 MAY 2011
