In HMRC v Apollo Fuels, B Edwards and others [2016] EWCA Civ 157 (17 March 2016), the Court of Appeal found that the lease of a car to an employee who paid lease charges at full market value was not a taxable benefit.
The issue was whether an employee was liable to income tax in respect of a car leased to him by his employer on arm's length commercial terms, including lease charges at full market value. HMRC contended that, although the employee did not derive any financial benefit from the lease and paid a full price by way of lease charges, he was chargeable to income tax under ITEPA 2003 (Part 3 Chapter 6) so that the ‘cash equivalent’ of the leased car should be treated as part of the employee's earnings. HMRC's case had been rejected by both the FTT and the UT.
The Court of Appeal asked itself whether the fact that the employee paid the full market value for the car meant that there was no ‘benefit of the car’ within the meaning of s 120. The court pointed out that the ‘overall context’ of Chapter 6 was the charging of salary and other benefits derived from employment to income tax. Any provision deeming a supply for which the employee had paid full value to be chargeable as income would therefore need to be absolutely clear. It also rejected HMRC’s argument that the rationale of Chapter 6 was to impose a tax on pollution. The court could therefore see no reason not to give the word ‘benefit’ its ordinary meaning and concluded that the employee in this case had received no such benefit.
Why it matters: Like the FTT and the UT, the Court of Appeal roundly rejected HMRC’s argument that the term ‘benefit’ in Chapter 6 was simply a drafting formula equivalent to ‘the provision of a car’. The Budget published on 17 March however contained a clarification that the concept of ‘fair bargain’, which applies where an employee receives goods or services on the same terms as a member of the public, will no longer apply to cars.
Also reported this week:
J Gedir v HMRC Foreign service deduction following change of employer
In HMRC v Apollo Fuels, B Edwards and others [2016] EWCA Civ 157 (17 March 2016), the Court of Appeal found that the lease of a car to an employee who paid lease charges at full market value was not a taxable benefit.
The issue was whether an employee was liable to income tax in respect of a car leased to him by his employer on arm's length commercial terms, including lease charges at full market value. HMRC contended that, although the employee did not derive any financial benefit from the lease and paid a full price by way of lease charges, he was chargeable to income tax under ITEPA 2003 (Part 3 Chapter 6) so that the ‘cash equivalent’ of the leased car should be treated as part of the employee's earnings. HMRC's case had been rejected by both the FTT and the UT.
The Court of Appeal asked itself whether the fact that the employee paid the full market value for the car meant that there was no ‘benefit of the car’ within the meaning of s 120. The court pointed out that the ‘overall context’ of Chapter 6 was the charging of salary and other benefits derived from employment to income tax. Any provision deeming a supply for which the employee had paid full value to be chargeable as income would therefore need to be absolutely clear. It also rejected HMRC’s argument that the rationale of Chapter 6 was to impose a tax on pollution. The court could therefore see no reason not to give the word ‘benefit’ its ordinary meaning and concluded that the employee in this case had received no such benefit.
Why it matters: Like the FTT and the UT, the Court of Appeal roundly rejected HMRC’s argument that the term ‘benefit’ in Chapter 6 was simply a drafting formula equivalent to ‘the provision of a car’. The Budget published on 17 March however contained a clarification that the concept of ‘fair bargain’, which applies where an employee receives goods or services on the same terms as a member of the public, will no longer apply to cars.
Also reported this week:
J Gedir v HMRC Foreign service deduction following change of employer
