A special commissioner held that s. 158(6) of the Taxes Act 1988 which made the cash equivalent nil where an employee reimbursed the person providing fuel for private use only operated when the reimbursement was in the same tax year.

Facts

Two directors were provided by the taxpayer company with company cars. They purchased fuel for those cars in the first instance and were reimbursed by the taxpayer in respect of business mileage. Enquiries by the Revenue showed that the car mileage log was inaccurate in certain respects, and that private mileage had been underestimated. The effect was that the taxpayer provided fuel for both business and private travel and the full cost of private fuel was not, as a matter of fact, made good to the taxpayer for the years concerned.

On 31 January 2005 the taxpayer invoiced the directors the cost of fuel for the period 1 December 2002 to 31 December 2004. The amount invoiced represented all the amounts previously claimed by directors, not just the private element. It was common ground that the directors were employed by the taxpayer in an employment which fell within Part V, Chapter II of ICTA 1988 for years up to 5 April 2003, and which was not an excluded employment within s. 216 of the Income Tax (Earnings and Pensions) Act 2003 from 6 April 2003. Both were therefore liable to income tax in respect of benefits provided to them by their employer. The provision of fuel by the employer triggered a charge to tax on the cash equivalent of the benefit (ICTA 1988, s. 158; ITEPA 2003, s. 149). Section 158(6) of the Taxes Act 1988 (applicable to 2002-03) provided that the cash equivalent was nil if in the relevant year the employee made good to the person providing the fuel the whole of the expense incurred by him in or in connection with the provision of fuel for his private use, and s. 151 of ITEPA 2003 (applicable for 2003–04) made similar provision. The taxpayers contended that the provisions were relieving provisions which should not be interpreted harshly against the taxpayer (Torrens v IR Commrs (1933) 18 TC 262 considered). Section 158(6)(a) could be read so that there was no condition that the payment had to be made in the tax year concerned. Although there was less scope for reading s. 151(2) in that way both provisions should be interpreted so as not to produce a harsh result for the taxpayer, particularly where the payment was a taxable receipt of the taxpayer company.

Since the Revenue had accepted that there was an obligation to make good the expense the sensible interpretation of these relieving provisions was that the employee should be allowed to do so retrospectively. It was the practice of the Revenue to interpret the legislation in that way (see Employment Income Manual at EIM 23782). A different inspector had allowed the treatment for which they contended in another case. The result was inequitable and the parties should be directed to reach a sensible compromise.

The Revenue contended that the only possible way to read the statutory provisions was that both the requirement to pay and the payment had to be in the relevant tax year. The directors had been properly charged to income tax and their appeals should be dismissed. Further, the operation of s. 10 of the Social Security Contributions and Benefits Act 1992 (‘SSCBA 1992’) imposed the liability for Class 1A NICs on the taxpayer and its appeal should be dismissed.

Issue

Whether under s. 158(6)(b) of the 1988 Act and s. 151 of the 2003 Act the reimbursement of the employer had to take place in the same tax year.

Decision

The special commissioner (Dr John Avery Jones) (dismissing the appeal) said that, applying first s. 158(6)(b) of the 1988 Act and para. (b) of condition A in s. 151 of the 2003, the question was whether in the relevant year (or in ITEPA 2003, s. 151, the tax year in question), i.e. 2002–03 and 2003–04, the employees made good the expense incurred by them in the provision of fuel for his private use. The answer was clearly that they did not do so in the relevant year. Since they failed that test, it was strictly not necessary to address the earlier part, but, while the Revenue accepted that the system adopted showed an intention that the employees were required to make good the expense, there was no evidence that they were required to make good the expense in the relevant year or in s. 151, the tax year in question). Accordingly they failed the earlier part of the test as well.

Account could not be taken of the request not to construe a relieving provision harshly against the taxpayer. The words were plain and did not admit any other interpretation. Nor could account be taken of the concessionary treatment contained in the Employment Income Manual at EIM 23782, to the effect that payments were treated as made within the year if they were made without unreasonable delay after the end of the year, or within 30 days of discovering an unintentional error. Nor could account be taken of the treatment in another case which was not before the commissioner and which might be wrong. Nor was it within the commissioner's power to direct the parties to reach a sensible compromise taking into account that the company had paid corporation tax on the reimbursement. The parties could have tried to compromise before the case reached the commissioner and might have done so, but the commissioner's task was to apply the law.

(2006) Sp C 562. Decision released 3 October 2006.