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A row of luxury cars | AccountingWEB | Reliance on HMRC's pool car definition stalls at tribunal
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Reliance on HMRC's pool car definition stalls at tribunal

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A recent first tier tribunal concerning whether a fleet of cars can be treated as pool cars reveals two key lessons: don’t rely or act upon HMRC assurances and legal jargon clouds the water. Ian Holloway distils the practical takeaways from the case.

11th Jun 2024
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The 16 May judgment in MWL International Ltd & Anor v The Commissioners for HMRC has to be one of the most complicated I have read. It’s no wonder the case was heard over three days. For something to be readable, you really do need to be able to take out all the specialised legal jargon and simplify things for your average reader.

The basics

Mr Walpole of MWL International Ltd met with HMRC in 1993 when conducting a PAYE audit of the Maywal group. At which time, HMRC advised that their fleet of cars could be treated as pool cars rather than company cars, provided:

  • They were available for company business if required
  • They were available to, and used by, more than one employee
  • They were kept overnight at the registered office of the employing company (which happened to be Mr Walpole’s residential address) and
  • Each employee who had use of the cars owned another car which was available for private use

This is not a full description of the legislative provision that describes a pool car (Income Tax (Earnings and Pensions) Act 2003, Section 167).

The facts

As we know, a pool car is only treated as a pool car if all the conditions are satisfied. From 1993 to 2018, prestige limousine cars came and went, all leased to MWL. However, they were never declared as company cars, with MWL relying on HMRC’s definition from the 1993 meeting.

However, in 2018 HMRC started investigations that found they were not all pool cars, as private use was not “merely incidental” to the business use. This is an important condition that HMRC had not pointed out at the meeting according to Mr Walpole and unchallenged by HMRC.

Therefore, HMRC issued some of the employees assessments for company car benefit and fuel benefit and MWL were issued with retrospective Class 1A determinations. It was the Class 1A determinations that were at the heart of the argument. If HMRC had told MWL that they could be treated as pool cars, why couldn’t they rely on this and change their tax affairs prospectively?

The legal definition murkiness

And here is the legal bit, used many times in the judgment:

  • Estoppel – essentially a legal term that means somebody cannot go back on their word, ie, referring to the 1993 meeting and the definition of a pool car
  • Ultra-vires – essentially an act that requires legal authority but is done without it, ie, HMRC making a statement at the 1993 meeting that is beyond their powers

The judgment found that, despite MWL’s desire to rely on estoppel, a person or body (HMRC) cannot be estopped if they are enforcing something that is in legislation. Therefore, the statement made at the 1993 meeting was ultra vires, ie, invalid or outside the scope of their powers.

Learning outcomes

The case has highlighted the importance of treating a car as a pool car only if it meets the statutory definition. This is not really a learning outcome and something we should be adhering to anyway.

It does, as I always say, come back to what the law says – ‘rules rule’. Plus, anything that HMRC says or put out as guidance is only their interpretation of the law.

For me, the case is a lengthy judgment read that, perhaps, provides some good eight letter Countdown words to keep up my sleeve – estoppel and estopped!

Replies (21)

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By Paul Crowley
11th Jun 2024 19:16

Pool cars are like UFOs
I am sure that they exist but I have never seen one. I have seen fakes, but not a certified HMRC agreed one.

Thanks (6)
Replying to Paul Crowley:
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By paulwakefield1
12th Jun 2024 09:39

I have! (Pool car that is not UFO). Only once mind you.

Thanks (2)
Replying to paulwakefield1:
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By Paul Crowley
12th Jun 2024 10:07

Was it a dubious photo?
The last one that I dealt with was genuine, a rubbish car parked at the workplace just in case the one of the sales agents did not drive in that day, but needed to take clients to a house viewing. No mileage record or indeed any record of when it was used. I am convinced the prior agent had advised him of the issue. He got rid of it within two years of becoming a client.

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Replying to Paul Crowley:
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By paulwakefield1
12th Jun 2024 10:21

Yes - quite genuine. They needed something that could be treated roughly which unsurprisingly employees were not too keen on in their private cars. Kept at client's premises (quite a big organisation). Could only be used for travelling to projects and had to be returned to the premises and not taken home (that caused a lot of angst on occasions when coming back late at night), mileage records kept and business use only insurance, etc.

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Replying to paulwakefield1:
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By Paul Crowley
12th Jun 2024 17:24

Business use only insurance is a risk that is a bit too much for my taste.

Thanks (2)
Replying to paulwakefield1:
Rob Swan
By Rob Swan
13th Jun 2024 10:50

Are you suggesting you've seen many more which ARE UFOs.
Asking for a friend ;)

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Replying to Rob Swan:
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By paulwakefield1
13th Jun 2024 11:09

Sshhhh! I didn't mean to let that slip.

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Replying to Paul Crowley:
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By OldLag
13th Jun 2024 09:26

I've seen loads. They were HMRC pool cars! All meticulously logged in and out, caged overnight at HMRC offices (remember those?!), and never allowed home overnight unless a long distance had to be covered the next day starting before 7am.

That aside, they don't exist as far as I've seen in the last 16 years in sole practice.....

Thanks (2)
Replying to Paul Crowley:
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By djtax
13th Jun 2024 10:02

Many years ago (back in the early 1990s) I came across a small (but very successful) OMB where HMRC had agreed there was no benefit in kind on the use of company plane....

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Replying to djtax:
Rob Swan
By Rob Swan
13th Jun 2024 10:51

Guessing that falls into the UFO category then?

Thanks (1)
Replying to djtax:
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By Paul Crowley
13th Jun 2024 11:02

We had a client with an aeroplane for a very short time, as in short time with us. He claimed is was business only, but moved on fairly soon when the questions on private use were asked.

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Replying to Paul Crowley:
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By bendybod
17th Jun 2024 15:51

I used to drive one. Oh my goodness, you wouldn't have wanted to drive it for any purpose other than the shortest of errands. I certainly would not have wanted to drive it the 17 miles home and then back again the next day. It was road legal but I think that is as far as it went. Certainly no more than enough for it to be legal!

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By FactChecker
11th Jun 2024 20:36

Hmm ... wonder whether the 'extra' condition was really news to him or just a convenient figleaf?

After a good run (25 years) did he get careless/greedy ... basically what caused "in 2018 HMRC (to) start investigations that found they were not all pool cars"?

Thanks (4)
Should Be Working ... not playing with the car
By should_be_working
12th Jun 2024 08:35

As an aside, what's the difference between a 'learning outcome' and a 'lesson'?

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Replying to should_be_working:
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By FactChecker
12th Jun 2024 15:58

When I was at school, the former was reserved for those pupils who were still awake at the end of the latter!

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Replying to should_be_working:
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By unclejoe
13th Jun 2024 09:35

The lesson is what is desired or intended to be learned. The learning outcome is what has been learned. For example: when I was working I had to attend annual DEI training (the lesson) and I came away with a renewed determination to find something more important and useful to be doing next year (the outcome). Hope this helps!

Thanks (1)
Rob Swan
By Rob Swan
12th Jun 2024 09:29

There are rules and 'interpretations' of rules, and 'games' can be played to one's advantage if one, (or one's advisors), are clever enough.
Accountants can play clever games with numbers and lawyers can play clever games with words. Putting the two together can sometimes turn the 'game' into four dimentional chess.
(FYI: I have no idea what 4D chess would look like, but I'm pretty sure most of us would give up before mastering it!)

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VAT
By Jason Croke
13th Jun 2024 09:07

I like the idea of

i) the pool cars were purchased by an associated company which leased them to the trading entity
and
ii) the pool cars came with a chauffeur

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By richard thomas
13th Jun 2024 11:55

“For something to be readable, you really do need to be able to take out all the specialised legal jargon and simplify things for your average reader.”

Quite right. However a decision of the First-tier Tribunal (Tax Chamber) is intended to decide the legal issues raised by the parties, and the issues raised by them in this case are complex and some of them are outside the usual questions of fact and the application of tax law to those facts. The only people to whom it is addressed are the parties. Given that one of the parties is HMRC, its litigators can be expected to understand, or have the means of finding out from its lawyers or counsel, what the decision means and establishes, and given that the appellant is advised by tax specialists including counsel who specialises in the complex area, it can surely not be necessary for the Tribunal to modify its language to suit the “average reader”, even the “average reader” of tax cases .
In many cases where the appellant is not represented judges, including in particular Judge Anne Redston, will often give an “average reader’s” summary of the decision at the outset for the express benefit of the appellant.

A much large number of Tribunal’s decisions are not published than are – the unpublished ones are often short and simply tell the appellant whether they have won or lost, with brief reasons. Any average reader would understand them.

The point made by this article at its start is therefore a silly one.

The learning outcome is that the case has “highlighted” the importance of treating a car as a pool car only if it meets the statutory definition. Well, who knew?

What it does “highlight” is not that, but the only point on s 167 ITEPA where the meaning of the law was disputed – whether the company occupied the premises where the cars were kept because the registered office was at the director’s home address.

It’s not “highlighted”, but there is a point on which I tend to disagree with Judge Redston, if I have correctly understood the implication of what is said in paragraphs 139 and 140. She seems to be saying that keeping records is a statutory requirement, because the Inspector making the “agreement” in dispute was acting pragmatically and had overruled the previous position of the Compliance Officer about record keeping.

Keeping records is an IR/HMRC requirement, not a legal one. An interesting, but not authoritative, decision on this point can be found at Dugan v HMRC [2016] UKFTT 618 (TC), a decision of some judge called Richard Thomas. The average reader may only be interested in paras 47 to 89: film “buffs” (are there any other kind of buff?) may know the origin of the first sentence of paragraph 2.

Thanks (4)
Replying to richard thomas:
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By FactChecker
13th Jun 2024 19:17

Hail, Caesar!

Thanks (3)
Replying to FactChecker:
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By richard thomas
13th Jun 2024 20:52

Why, thank you! Of course you are right and I was expecting you to get in first.

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