A recent tribunal decision highlights the limits of estoppel.
The recent decision in MWL International Ltd and another v HMRC [2024] UKFTT402 (TC) was all about whether various cars were pool cars. This is an important issue because a pool car does not give rise to a benefit in kind on the users, or NIC.
The tests in ITEPA 2003 s 167 for qualifying as a pool car are pretty tough (as you would expect, having regard to their advantages):
‘(a) the car was made available to, and actually used by, more than one of those employees,
‘(b) the car was made available, in the case of each of those employees, by reason of the employee’s employment,
‘(c) the car was not ordinarily used by one of those employees to the exclusion of the others,
‘(d) in the case of each of those employees, any private use of the car made by the employee was merely incidental to the employee’s other use of the car in that year, and
‘(e) 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.’
The facts did not really support the taxpayer’s claim for the various cars to be pool cars – but there was a much more important issue.
In 1993, HMRC agreed with the taxpayer that no mileage records were necessary, but they later changed their mind and imposed Class 1A NIC for some earlier years. The taxpayer appealed on the basis that HMRC were estopped from raising these assessments by their earlier agreement, and that the taxpayer had a legitimate expectation based on the agreement.
There was no dispute about the existence of the agreement, but the FTT said that the law was clear and the assessments could not be challenged on the basis of a prior agreement with HMRC. Among other similar things, the FTT said:
‘The inspector had no power to enter into a future agreement to that effect ... A void and illegal agreement cannot form that basis for an estoppel.’
I do not challenge the legal analysis but if this decision stands it will create enormous difficulties in the administration of taxes. The taxpayer ought to be able to rely on agreements made with HMRC (based on full disclosure) – otherwise what are they to do. Taxpayers are asked by HMRC to agree to things all the time. And what are HMRC going to do when they want to agree something with the taxpayer who says:
‘I would love to agree with you but how do I know that what you are doing is not void for some reason that I cannot begin to know or understand. Surely you as HMRC would not ask me to agree to something which is illegal or void. I am sorry, but of course I cannot agree.’
Of course, HMRC can change their mind and say that we do not agree with this or that point from now on – but it cannot be right for them then to impose tax retrospectively for earlier years.
Maybe there is a solution. The FTT said that this was a matter of legitimate expectation where they do not have jurisdiction. So maybe the Upper Tribunal (which does have jurisdiction) will take a different view.
A recent tribunal decision highlights the limits of estoppel.
The recent decision in MWL International Ltd and another v HMRC [2024] UKFTT402 (TC) was all about whether various cars were pool cars. This is an important issue because a pool car does not give rise to a benefit in kind on the users, or NIC.
The tests in ITEPA 2003 s 167 for qualifying as a pool car are pretty tough (as you would expect, having regard to their advantages):
‘(a) the car was made available to, and actually used by, more than one of those employees,
‘(b) the car was made available, in the case of each of those employees, by reason of the employee’s employment,
‘(c) the car was not ordinarily used by one of those employees to the exclusion of the others,
‘(d) in the case of each of those employees, any private use of the car made by the employee was merely incidental to the employee’s other use of the car in that year, and
‘(e) 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.’
The facts did not really support the taxpayer’s claim for the various cars to be pool cars – but there was a much more important issue.
In 1993, HMRC agreed with the taxpayer that no mileage records were necessary, but they later changed their mind and imposed Class 1A NIC for some earlier years. The taxpayer appealed on the basis that HMRC were estopped from raising these assessments by their earlier agreement, and that the taxpayer had a legitimate expectation based on the agreement.
There was no dispute about the existence of the agreement, but the FTT said that the law was clear and the assessments could not be challenged on the basis of a prior agreement with HMRC. Among other similar things, the FTT said:
‘The inspector had no power to enter into a future agreement to that effect ... A void and illegal agreement cannot form that basis for an estoppel.’
I do not challenge the legal analysis but if this decision stands it will create enormous difficulties in the administration of taxes. The taxpayer ought to be able to rely on agreements made with HMRC (based on full disclosure) – otherwise what are they to do. Taxpayers are asked by HMRC to agree to things all the time. And what are HMRC going to do when they want to agree something with the taxpayer who says:
‘I would love to agree with you but how do I know that what you are doing is not void for some reason that I cannot begin to know or understand. Surely you as HMRC would not ask me to agree to something which is illegal or void. I am sorry, but of course I cannot agree.’
Of course, HMRC can change their mind and say that we do not agree with this or that point from now on – but it cannot be right for them then to impose tax retrospectively for earlier years.
Maybe there is a solution. The FTT said that this was a matter of legitimate expectation where they do not have jurisdiction. So maybe the Upper Tribunal (which does have jurisdiction) will take a different view.
