[2010] UKFTT 187

TC00491                    

   Appeal number TC/2009/12845

Class 1A NIC – Provision of car for member of employees family – Whether the making available of an equivalent car is in accordance with normal commercial practice for an employment of the kind held by that family member – Insufficient evidence – Appeal dismissed – Section 169(4) Income Tax (Earnings and Pensions) Act 2003

FIRST-TIER TRIBUNAL

TAX 

	S BARNARD LIMITED	Appellant

	- and -

	THE COMMISSIONERS FOR HER MAJESTY’S
	REVENUE AND CUSTOMS (NIC)	Respondents

TRIBUNAL:		John Brooks (Judge)
			Terence Bayliss (Member)

Sitting in public in Birmingham on 5 March 2010

David Smith and John Campbell of Campbell Associates Chartered Certified Accountants for the Appellant

Simon Bates of HM Revenue and Customs for the Respondents

© CROWN COPYRIGHT 2010

DECISION

1.	S Barnard Limited appeals against: —
(1)	a Decision of 27 February 2009 made under s 8 of the Social Security Contributions (Transfer of Functions. Etc.) Act 1999 (“SSCTFA”), as varied following a review by  HM Revenue and Customs (“HMRC”), that S Barnard Limited is liable to pay Class 1A National Insurance Contributions (“NIC”) amounting to £1,223 for the period 9 December 2005 to 5 April 2007 in respect of a car made available to S Barnard for private use; and
(2)	a Penalty Determination in the sum of £1,223 dated 27 February 2009, as amended following a review, made under Regulation 81 (2)(a) Social Security (Contributions) Regulations 2001 (“SSCR”) in respect of the failure to submit end of year return relating to Class 1A NIC as required by Regulation 80 SSCR.
Facts
2.	The following facts, which we have taken from HMRC’s ‘Statement of Case’, correspondence between the parties and the informal evidence given by Mrs Anni Barnard, are not disputed.
3.	S Barnard Limited (the “Company”) is a small plumbing business based in Moreton-in-Marsh, Gloucestershire. Mr Shane Barnard is the sole director and Mrs Barnard the company secretary. They are the only employees of the Company.
4.	In December 2005 the Company provided Mrs Barnard with a BMW 330D    Sport Touring Car (the “Car”) for business and private use. The purchase price of the Car was approximately £32,000 and its annual running costs are about £6,000.
5.	Mrs Barnard, who does not receive any salary from the Company, performs what Campbell Associates, the Company’s accountants, in their letter of 17 March 2009 describe as a “unique” role.
6.	She provides support for her husband in all aspects of the Company’s business including clerical and managerial. She does not have regular hours and is called upon to work nights and weekends and is responsible for all administrative functions. She uses the Car as a necessity, for example taking deliveries of equipment and transporting it to wherever needed by Mr Barnard. 
7.	In addition to the duties she performs for the Company, Mrs Barnard works part time for three mornings each week for the chemist in Stow-on-the-Wold and cares for their two children who are now aged seven and 10.
Law
8.	Where in a tax year a car is provided by a persons employer, by reason of his employment, for the private use of a member of that person’s family the “cash equivalent of the benefit of the car is to be treated as earnings from the employment for that year” and subject to income tax (see sections 114 – 120 66 Income Tax (Earnings and Pensions) Act 2003 (“ITEPA”)).
9.	In such circumstances a liability to pay Class 1A NIC arises under s 10 Social Security Contributions and Benefits Act 1992. Where a Class 1A liability is payable Regulation 80 SSCR requires an employer to make a return to HMRC and a failure to do may result in the imposition of a penalty under Regulation 81 SSCR. 
10.	However, if a car is not treated as earnings from the employment under ITEPA there will be no Class 1A NIC liability.  
11.	Section 169 ITEPA provides: —
(1)     This section applies where—
(a)     an employee (“E”) and a member of the employee's family or household (“M”) are employed by the same employer, and
(b)     as a result of a car being made available to M in a tax year, E would (apart from this section) be chargeable to tax in respect of the car in that year by virtue of section 120.
(2)     The cash equivalent of the benefit of the car and of any fuel provided for the car by reason of E's employment is not to be treated as E's earnings for that year if—
(a)     M is chargeable to tax in respect of the car in that year by virtue of section 120, or
(b)     where M's employment is an excluded employment, M had the benefit of the car in M's own right as an employee and condition A or B is met.
(3)     Condition A is met if equivalent cars are made available on the same terms to employees who—
(a)     are in similar employment to M with the same employer, and
(b)     are not members of the family or household of employees of that employer who are employed in employment which is not an excluded employment.
(4)     Condition B is met if the making available of an equivalent car is in accordance with the normal commercial practice for an employment of the kind held by M.
12.	In an appeal, such as this, against a Decision under s 8 of SSCTFA, Regulation 10 of the Social Security Contributions (Decisions and Appeals) Regulations 1999 provides: —
If, on an appeal … it appears to the tribunal that the decision should be varied in a particular manner, the decision shall be varied in that manner, but otherwise shall stand good.
13.	The long established effect of such a provision is that the onus lies on the Appellant to satisfy the Tribunal upon sufficient evidence that the Decision appealed against was erroneous (see T Haythornwaite & Sons v Kelly (H M Inspector of Taxes) (1927) 11 TC 657). 
Issue for Determination
14.	HMRC accept that Mrs Barnard, who is a member of her husband’s family (see s 721(4) ITEPA), is in excluded employment and had the benefit of the Car in her own right as an employee. Also the parties agree that as Mr and Mrs Barnard are the only employees of the Company it is not possible to meet condition A in s 169(3) ITEPA.
15.	Therefore the issue for us to determine is whether condition B in s 169(4) ITEPA has been met i.e. whether the making available of an equivalent car is in accordance with the normal commercial practice for an employment of the kind held by Mrs Barnard.  
Contentions of the Parties
16.	Mr Smith, for the Company, submitted that the provision of the Car to Mrs Barnard meets condition B in s 169(4) ITEPA as it was a commercial decision based on Mrs Barnard’s employment, not her relationship to the director.
17.	He referred to the duties performed by Mrs Barnard contending that the provision of the Car is not “abnormal commercial practice” and was “quite common for an employment of that kind”. 
18.	As for the Car itself Mr Smith explained that the list price reflected the low emission engine. Its provision to Mrs Barnard could only be considered “uncommercial” if the annual costs of running the vehicle of approximately £6,000 were in excess of the value of that employee of the business and the fact that Mrs Barnard receives no cash remuneration is relevant in considering commerciality as it is the right of every employer to negotiate with their employees how they are remunerated.
19.	Mr Smith described the difficulty faced in providing evidence of commerciality even though as an accountant he had come across situations and circumstances similar to the present case. He explained that information about these other companies could not be produced to the Tribunal due to client confidentiality and the provisions of the Data Protection Act. 
20.	Although no submissions were made regarding the appeal against the penalty it is clear from the Notice of Appeal and the letter to HMRC from Campbell Associates of 17 March 2009 that appeal against the penalty is on the same grounds as the Class 1A NIC appeal. As such the penalty appeal stands or falls with the NIC appeal.
21.	Mr Bates, for HMRC, submitted that there were three elements to condition B in s 169(4) ITEPA: the car or an equivalent car; the job (an employment of the kind held by the family member); and normal commercial practice.
22.	As for the car Mr Bates contended it has to be broadly equivalent in terms of size, status, age and cost. He submitted that the Appellant has to produce evidence of real cases in which employers offer cars, which can be considered to be equivalent to the Car, to employees doing similar jobs to Mrs Barnard.
23.	Mr Bates argued that the job has to be similar employment with another employer with comparable hours of work and level of remuneration.
24.	Although the phrase “normal commercial practice” is not defined Mr Bates contended that it was not sufficient to say that, because it suits the business aims of the employer for an employee to have a car and/or the employees salary is set at a low level, the overall remuneration is set at a commercial level.
25.	He submitted that s 169(4) ITEPA is not concerned with whether the value of the overall remuneration package is commercial but concentrates on whether the provision of an equivalent car is normal commercial practice in relation to a job of the kind that Mrs Barnard holds.
26.	We were referred to the minimum wage legislation which requires employers to pay their employers at least the national minimum wage and expressly precludes the provision of car from being treated as payments by an employer (see Regulation 9 National Minimum Wage Regulations 1999). Mr Bates submitted that it cannot be a normal commercial practice to contravene these statutory provisions. 
27.	Mr Bates also commented on the lack of evidence to support the Company’s case that the provision of the Car to Mrs Barnard was normal commercial practice suggesting that it would have been possible to anonymise details of other companies to protect client confidentiality if the practice was as widespread as contended on behalf of the Company.
Decision
28.	We accept the contention of Mr Bates that s169(4) ITEPA is not concerned with whether the value of the overall remuneration package is commercial but whether the provision of an equivalent car is normal commercial practice in relation to a job of the kind that Mrs Barnard holds
29.	We also note the comments made by Mr Smith concerning the difficulty of providing evidence of normal commercial practice in relation to other businesses due to client confidentiality.
30.	However, having carefully considered the submissions made on behalf of the parties we find that there is insufficient evidence for us to determine whether the provision of an equivalent car is in accordance with the normal commercial practice for an employment of the kind held by Mrs Barnard.
31.	In the absence of sufficient evidence that the Decision appealed against was erroneous it “shall stand good”. Therefore the appeal is dismissed. 
32.	As the penalty appeal relied on the same grounds as the NIC appeal that too is dismissed and the penalty confirmed.
33.	The Appellant has a right to apply for permission to appeal against this decision pursuant to Rule 39 of the Rules.   The parties are referred to “Guidance to accompany a Decision from the First-tier Tribunal (Tax Chamber)” which accompanies and forms part of this Decision Notice.

JOHN BROOKS

TRIBUNAL JUDGE
RELEASE DATE: 26 April 2010