0 to 60 (thousand pounds) in no time
By Justine Riccomini, Head of Taxation (Scottish Taxes, Employment and ICAS Tax Community)
5 February 2021
Justine Riccomini explains the outcomes of the first of two recent case decision which left the taxpayer with a hefty benefit in kind charge.
Tax case 1
Determinations, discovery assessments and closure notices
In the case of Tim Norton Motor Services v HMRC [2020] TC7973 which was heard at the First Tier Tax Tribunal in October 2020 and decided in December 2020, the NICs determinations, discovery assessments and a closure notice raised by HMRC spanning seven tax years from 2010-11 concerned themselves with the availability of two different cars in a car dealership to a shareholder-director. Benefits in kind (BIKs) were computed under Part 3 Ch.6 ITEPA 2003 and corresponding employer’s NICs on the provision of said BIK were also assessed on the employer company.
When is a car not “available”?
Due to the value of the vehicles concerned, which were a rare model of Maserati and a Ford GT40 which the company had purchased in 2001 and 2005 respectively, the benefit charges were high. HMRC raised the assessments following an employer compliance review in 2016 whereby the officer concluded that the cars had been “made available” to Mr Norton for periods longer than those in relation to which a BIK had been declared.
Good faith
The company had made what it considered to be sufficient effort to demonstrate that the cars were not ‘made available’ to the director under s.114 ITEPA 2003 by carrying out the following actions:
- The cars were kept on the company premises which was ten miles away from the director’s own home;
- The keys to the car were held in a locked box within a locked safe on the business premises;
- The staff handbook contained an instruction to deny the use of any vehicle without express permission of the management;
- The cars were not used for commuting by the director or his wife;
- The Maserati was kept at the back of a large showroom garage behind a number of other vehicles; the Ford was kept in the showroom;
- The Ford was occasionally taken to car shows for advertising purposes. If either of the cars was to be used, Vehicle Excise Duty was paid in advance and a SORN declaration completed when the car was returned to the company premises. MOTs were in place when the cars were driven;
- Only Mr Norton was insured to drive the vehicles, and for the first few years, only one of the vehicles was to be driven at any one time;
- Mr Norton declared that he only used both cars for business purposes and the Ford had the company logo affixed to it by way of livery;
- P11D declarations had been made for certain periods in the years during which the assessments had been made to cover off the periods when it was considered there had been some (unspecified) private use of the cars by Mr Norton.
Decision
In spite of the arguments put forward by Mr Norton that he would not have driven the car on occasions when it was technically illegal to do so and the car would not have been covered by the insurance had it been involved in an accident, the judge decided that a BIK and corresponding NICs liability nevertheless applied while the car was off the road.
He considered the staff handbook was not prohibitive enough to place sufficient restraint on Mr Norton and that it was simple enough to restore availability at any time by paying Vehicle Excise Duty and ensuring the roadworthiness of the car.
Moral
The moral of this story is to ensure that the paper trail (in this case the staff handbook and management instructions) leave no-one in any doubt that the car is strictly not available and the director is unable to reverse this by dint of his position of power. This does seem to be a particularly harsh decision, however, in view of the alternate use of SORN declarations and corresponding P11D entries covering the years in question.