Company car tax free, no car benefit where cars leased to Employees by Employer
This case involves Apollo Fuels group and HMRC where the company leased cars at market value to their employees. HMRC claimed that the company has provided company cars and the NI contribution should have been deducted and paid to HMRC.
Their view was that although the employees did not derive any financial benefit from the lease and paid full price by way of lease charges, nonetheless the leased cars amounted to cash equivalent and should have been treated as part of the employee’s earnings and is chargeable to income tax.
The revenue’s case was rejected by the first-tier tribunal and on appeal by the Upper tribunal. HMRC appealed to the higher courts.
The principal issue was whether the arrangements for leasing the cars to the employees fell within Ch6 of Pt3 of ITEPA. And if so then both income tax and national insurance contributions were payable in respect of the cars. The court decided that the employees had paid the full market value for the cars meant that there had been no benefit of the cars within the meaning of s120 of the Act and hence nothing that could be liable to tax. The appeal would be dismissed.
Parliament had used the phrase “the benefit of the car” in ss 114(2) and 120(1) of ITEPA without having defined it. The choice of the word “benefit” without any definition qualifying or altering its ordinary meaning, had been intended to show that, before a charge to income tax in those circumstances arose. There had to be a benefit to the employee in the ordinary sense of that word. It was simply a case of giving meaning and effect to its express terms.
The UT and FTT had been right to have decided that a charge to income tax arose under Ch 6 only if the terms on which a car was leased to an employee conferred a benefit on the employee in the ordinary sense of that word. It was held that employees in the present case had received no such benefit.