[2010] UKFTT 331  (TC)

TC00616

Appeal number:  TC/2009/15296

National Insurance Contributions – Class 1A – benefit of the use of a car and fuel – whether a pool car within section 167 ITEPA – held no

FIRST-TIER TRIBUNAL
TAX

	YUM YUM LIMITED	Appellant

	- and -

	THE COMMISSIONERS FOR HER MAJESTY’S
	REVENUE AND CUSTOMS (Income tax)	Respondents

TRIBUNAL: 	 Charles Hellier (Judge)
		 Harvey Adams (Member)

Sitting in public in Holborn London on 28 May 2010

Lutfi Talib of Ashfields for the Appellant 

Pauline Carney for the Respondents

© CROWN COPYRIGHT 2010

DECISION

1.	Yum Yum Ltd appeals against a decision of HMRC of 17 September 2008 that it is liable to Class 1A National Insurance Contributions (NICs) for the period 6 April 2002 to 5 April 2008 in respect of the use by the Appellant’s sole director of a car owned by the Appellant, and in respect of the provision of fuel for the car.

2.	By section 10 Social Security Contributions and Benefits Act 1992 Class 1A NICs are payable by the employer in respect of those general earnings of the employee (as determined under ITEPA 2003) as are left out of account for the purposes of Class 1 NICs (s.10 SS&DA).  The benefit of a car provided by the employer and of the fuel are left out of account for Class 1 NICs and the benefits are therefore subject to Class 1A contributions.

3.	Chapter 6 of Part 3 ITEPA provides for the treatment of benefits related to cars as earnings of the employee.  

4.	Sections 114 to 148 of that Chapter provide for the determination of an amount of earnings based on the original price of a car for a car which is made available to an employee by reason of his employment.  Section 149 to 153 provide for an amount to be treated as earnings if fuel is provided for a car by reason of employment: the amount is a percentage (determined by reference to CO2 emissions and engine capacity) of a fixed monetary sum (£14,400 in 2007-08) irrespective of the actual amount or value of fuel provided.
5.	Section 167 ITEPA provides an exemption for pool cars.  If the provision of the car satisfies the particular conditions of section 167(3), the provision of the car is treated as not having been available for private use with the result that its provision is not taxable under section 120 and the provision of fuel for it is not taxable under section 149.

6.	In this appeal the Appellant appeals against HMRC’s decision principally on the basis that the car provided to its director was a pool car.

The Evidence and our findings of fact

7.	We had before us copy correspondence between HMRC and the Appellant and copies of the Appellant’s accounts for the years to 30 November 2004 and 2005.  Mr Talib gave us an account of the business of the company and its dealings with the car.

8.	The Appellant runs a restaurant in Wandsworth.  The business is managed by Mr Yeow who is the sole director of the Appellant.  Mr Yeow works for the Appellant seven days a week and his little spare time.  Mr Talib described him as a frugal man.  Mrs Yeow also works in the restaurant and the Appellant employs kitchen staff and 2 or 3 waiting staff.  The restaurant is not open for lunch but opens in the evenings from about 6.00pm to 11.00pm seven days a week.  The restaurant also supplied takeaway food which may be delivered.

9.	At some time before 5 April 2003 Mr Yeow decided that the Appellant should acquire a car.  The car was a 1997 Jaguar XJ Sport.  It retained the car during each of the years relevant to the appeal.  HMRC assert, and it was not disputed, that the list price of the car was £38,879 in 1997.  The accounts show its acquisition cost as about £14,000; Mr Talib told us that its present value was about £250.

10.	The car is used for the business of the Appellant.  We accept that it is used to deliver takeaway meals on occasion, and to transport provisions to the restaurant.  It was also used to transport staff.  No records were kept of the use of the car for these purposes and it was not possible accurately to determine the proportion of the total use of the car which was attributable to this business use.

11.	The car was insured for its use by Mr and Mrs Yeow for social and domestic purposes, and for purposes in connection with their businesses or professions.  No insurance was taken out by the Appellant for other persons to drive the car.  

12.	Mr Yeow lives about 2 miles from the restaurant.  The car was kept overnight at his house.  The restaurant was on a main road and did not have parking space.

13.	Mr Talib told us, and we accept, that in the morning Mr Yeow would drive the car from his house to collect provisions for the restaurant and then drive on to deliver them to the restaurant.  We think it is likely that having done so he drove home before returning to the restaurant later in the day or that he drove it home at the end of the evening.

14.	Mr Talib told us that Mr Yeow owned a motorbike and another car.  His children had grown up and his time was spent on his business.  Whilst we accept this we do not conclude that the only use of the car was therefore in connection with the business of the Appellant.

15.	Mr Talib told us, and we accept, that the business records of the Appellant are kept are maintained at Mr Yeow’s house.

16.	Mr Talib provided MOT documentation for the car which suggests that the car travelled an average 5,000 to 7,000 miles a year.  He estimated the petrol cost at some £1,500 p.a. which was roughly comparable to the car costs shown in the Appellant’s accounts.  We accept that the car was not heavily used, but this evidence did not enable us to conclude that the only usage was business usage since it was possible that the accounting cost included the cost of fuel for private use.

17.	In our view it was not only not proved that there was no private use, but, given the nature of the car it was likely that there was some private use of it by Mr Yeow.

18.	There was no evidence before us that the car had actually been driven by any person other than Mr Yeow.

The Appellant’s argument

19.	Mr Talib said:
(i)	the car was primarily used for the business and met all the conditions to qualify as a pool car.
(ii)	the car was kept overnight at the director’s home because parking at the restaurant overnight would be impractical as parking restrictions started at 9.30 in the morning
(iii)	Mr Yeow conducted the administration of the business (accounting records, PAYE etc) at home.  His home was a place where the business was conducted.  Mr Yeow started work at home and left to continue the business of the company.
(iv)	the scale changes under s.114ff for the provision of the car and under s.149ff for the provision of fuel were incommensurate with the actual costs and the value obtained.  The car expenses incurred by the Appellant compared with the notional charge showed the unfairness:-

Year		Accounts	Notional Fuel charge

2004		£3,950			£4,068
2005		£1,124			£4,068
2006		£1,040			£4,068
2007		£1,127			£4,068

The annual scale benefit of the provision of the car was £12,441, for 2003-4 to 2007-08 – a total of £62,000.  The car cost only £14,000.

Further the accounts figure included use only for the purpose of the business.  The scale charge was wholly disproportionate.

The Respondents’ arguments

20.	Mrs Carney said:-
(i)	HMRC accept that there was business use of the car, but there was no evidence that the car had not been available for private use or even that it had not been used for private purposes.  Indeed the return of the car to Mr Yeow’s home suggested private use of the car by Mr Yeow in returning home.  The burden was on the Appellant to show that there was no private use if it so contended;
(ii)	the conditions in section 167 for a car to be a pool car were not shown to have been satisfied in particular:-

(a)	there was no evidence that the car had actually been used by any employee other than Mr Yeow;
(b)	the car was kept overnight in the vicinity of the residence of Mr Yeow which was not a place occupied by the Appellant.

(iii)	although the scale changes might seem disproportionate and not to reflect actual cost on benefit, they were what the legislation provided for.

Discussion

21.	The benefit changes in Chapter 6 Part 3 ITEPA apply when a car is made available to an employee for the employee’s use.  Section 118 provides that a car made available to an employee is to be so treated unless:

“(a)	the terms on which it is much available prohibit such use; and
 (b)	it is not so used”.

These conditions were not satisfied: there was no evidence of any prohibition on private use (and indeed the terms of the insurance policy suggested private use was not outlawed), and we concluded that Mr Yeow did use the car for private purpose when he drove it home from the restaurant, and on other occasions.  Accordingly despite the business use of the car the benefit of the car computed in accordance with the Chapter fell to be treated as earnings unless the pool car exception applied.

22.	Section 167 provides five conditions which must all be satisfied for a car to be a pool car (see the “and” at the end of s.167(3)(d)),  If any one is not satisfied the car is not a pool car.  We were not persuaded that the first condition in s.167(3)(a) was satisfied, and concluded that the fifth condition in section 167(3)(d) was not satisfied.

22.	Section 167(3)(a) requires that the “car was made available to, and actually used by, more than one of” the employees of the employer.  There was no evidence before us which suggested that the car was actually used by anyone other than Mr Yeow.  We were not therefore persuaded that this condition was satisfied.

23.	Section 167(3)(d) is that:

“the car was not normally kept overnight on or in the vicinity of any residential premises where any of the employees was residing, except while being kept overnight on premises occupied by the person making the car available to them.”

This condition makes no reference to the reason for keeping the car at a particular location.  The practicality or sense of an overnight location are irrelevant.  The test is simply one of where the car was kept.

24.	The car was kept overnight at Mr Yeow’s home.  It was thus normally kept at premises where an employee was residing.  The condition is therefore not satisfied unless the exception relating to occupation of the premises at which the car is kept by the employer applies.

25.	The exception will apply only if the Appellant “occupied” Mr Yeow’s house.  Mrs Carney says that the Appellant’s business was a restaurant carried on in Wandsworth, it was not the keeping of records in Parson’s Green; the Appellant did not occupy Mr Yeow’s house

26.	It seems to us that the Appellant did not occupy Mr Yeow’s house, but we do not agree with Mrs Carney’s construction.  The question is not where the business or the core of the business was carried out, but whether the Appellant ‘occupied’ certain premises.
27.	There is no definition of “occupation” in ITEPA, and no authority was shown to us on its meaning in that context.  The word was used in rating law and in relation to the charge to tax under what used to be Schedule B.  It seems to us that the meaning of the word in ITEPA should be taken to be that which it was given in rating law and for Schedule B purposes.  A similar approach has been taken in relation to its meaning in IHTA.

28.	Back v Daniels 9 TC 183 was a case about whether a potato merchant was the “occupier” for the purposes of income tax under Schedule B of certain land.  The potato merchant planted and harvested crops of potatoes on land belonging to another which the merchant was given a right to use for that purpose.  In that case Pollock MR quoted Lord Hershall in an earlier case:

“The question whether a person is an occupier or not within rating law is a question of fact, and does not depend on legal title.”

Later Pollock MR said (at page 198):

“… although possession is an element of, it is not equivalent to occupation.”

29.	Scrutton LJ said of the term “occupier” for Schedule B purposes (at page 201):

“The term is probably used in the same sense as in the law of rating.  That sense … appears to involve possession of a permanent character such that trespass could be brought by the occupier with the enjoyment of a benefit from the land.”,

and later: “I agree … that exclusive occupation does not mean the power of excluding everyone else from the land, but it does mean the exclusive power of rights given him in the soil.”

30.	In J A and J Dawson v Counsell 22 TC 149, Scott LJ said:

“The occupier for tax purposes [Schedule A or B] is, I think, broadly the same kind of occupier as the occupier for rates. …”

He then referred to the explanation of the term given by Lord Russell in Westminster Council v southern Railway Co 193 CAG 511 where Lord Russell said;

“Occupation, however, is not synonymous with legal possession : the owner of an empty house has the legal possession, but he is not in rateable occupation.  Rateable occupation, however, must include actual possession, and it must have some degree of permanence : a mere temporary holding of land will not constitute rateable occupation.  Where there is no rival claimant to the occupancy, no difficulty can arise; but in certain cases there may be a rival occupancy in some person who, to some extent, may have occupancy rights over the premises.  The question in every such case must be one of fact – namely, whose position in relation to occupation is paramount, and whose position in relation to occupation is subordinate; but, in my opinion, the question must be considered and answered in regard to the position and rights of the parties in respect of the premises in question, and in regard to the purpose of the occupation of those premises. …”

A familiar instance of this competing occupancy is the case of the lodger.  It has long been settled on the one hand that, in the case of lodgers in a lodging house, the lodgers are not rateable in respect of their occupancy of their rooms, but that the landlord is the person who is rateable in respect of his occupancy of the entire house.  In view of the frequently fleeting nature of the occupancy of a lodger, the convenience of this view, indeed the necessity for it, is obvious; but it purports to be based upon the paramountcy of the landlord’s occupation, arising from his control of the front door and his general control over and right of access to the lodgers’ rooms for the proper conduct of the lodging house. …”

“My Lords, I cannot but feel that the position of the lodger in relation to rateability is an exceptional one, and is largely the product of practical considerations.  But it can I think be justified and explained when we remember that the landlord, who is the person held to be rateable, is occupying the whole premises for the purpose of his business of letting lodgings, that for the purpose of that business he has a continual right of access to the lodgers’ rooms, and that he, in fact, retains the control of ingress and egress to and from the lodging house, notwithstanding that the power of ingress and egress at all hours, is essential to the lodger.  The general principle applicable to the cases where persons occupy parts of a larger hereditament seems to be that if the owner of the hereditament (being also in occupation by himself or his servants) retains to himself general control over the occupied parts, the owner will be treated as being in rateable occupation; if he retains to himself no control, the occupiers of the various parts will be treated as in rateable occupation of those parts.”

31.	We see no reason to suppose that the draftsman of section 167 had in mind any different meaning of occupation from that developed in earlier case law.  We draw the conclusion that “occupation” for the purposes of section 167 is the state of affairs which exists when a person:-

(i)	has physical possession of land – and we take a person to have physical possession of land when he actually uses it for such purposes as he see fit (subject to any requirement imposed upon him by any agreement relating to the land or restriction to which the land is subject);

(ii)	controls the use of that land;

(iii)	has the power of excluding (by trespass action) other persons from the benefit he enjoys in the land; and

(iv)	has some form of right to some enjoyment of the land.

32.	There was no evidence before us to suggest that it was the Appellant rather than Mr Yeow which had possession or control of Mr Yeow’s house or any power to exclude persons from it.

33.	We conclude that the Appellant did not occupy Mr Yeow’s house and accordingly that the exception in (d) does not apply.

34.	We accept that the scale charges prescribed by Chapter 6 are disproportionate to the benefit provided and received but they are what has been determined by Parliament.

35.	We therefore dismiss the appeal.

36.	The rights of the Appellant to appeal this decision are set out in the document which accompanies it, and which to that extent forms part of the decision.

CHARLES HELLIER
TRIBUNAL JUDGE
RELEASE DATE: 14 July /2010