Full reimbursement didn’t cancel car benefitby
Directors reimbursed their employer in full for the cost of leased cars, but HMRC successfully argued at first tier tribunal that this did not remove the benefit in kind charges.
The case of Smallman & Sons Ltd (TC08242) considered whether a benefit in kind charge can arise where an employee fully reimburses their employer for the cost of the car made available to them.
Smallman & Sons Limited (SSL) was the subject of a routine compliance review by HMRC in April 2016. The final outstanding issue was the provision of four cars to two directors and their daughter.
SSL paid the lease costs for these cars but the full cost was reimbursed by the directors via their directors’ loan accounts. These accounts were always in credit throughout the period under consideration.
The reason the transactions were structured this way was that that SSL had a good relationship with the dealer and so was charged a lower lease cost than would have been available to the directors personally.
HMRC’s view was that these cars attracted benefit in kind charges. HMRC assessed SSL for Class 1A NIC of £45,518 for the six years to 5 April 2017. Penalties of £7,318.60 were also charged for the same period. The directors were assessed for five years of additional income tax totalling £90,300.01.
HMRC said it was justified in using the extended six-year time limit for raising assessments in place of the four-year limit, as it argued that SSL and the directors had been careless or deliberate in their errors on their returns.
In brief, to attract a benefit in kind charge, a car must be made available for private use, for an employee or member of their family/household, by reason of the employment (ss.114-120 ITEPA 2003).
SSL argued that it was acting purely as an agent between the car dealer and the directors and was thus not the one making the cars available to the directors. If you bought a car using a cheque, no-one would claim the bank was making the car available, SSL argued.
SSL further argued that up until the legislation was reworded with effect from 5 April 2016, a “benefit in the ordinary sense of the word” had to arise in order to create a tax charge. The directors were reimbursing the full cost of the lease, so where was the benefit?
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