SPC00495

INCOME TAX – Car and Fuel Benefit – is a motorhome a car within the meaning of s168(5)(a) ICTA 1988 – yes – motorhome provided for personal use and by reason of employment – taxpayer liable to pay income tax on car and fuel benefit – Appeal dismissed.

DISCOVERY ASSESSMENT – No tax return produced in evidence – is evidence of the tax return a necessary pre-requisite for making a decision about whether the Revenue has complied with the condition of s29(5) TMA 1970 - yes unless destroyed or lost – the burden of adducing evidence of the return rests on the taxpayer- no evidence adduced – discovery assessment validly made.

NATIONAL INSURANCE CONTRIBUTION – Class 1A NIC – Company liable to pay additional Class 1A on car and fuel benefit – Appeal Dismissed.

SPECIAL COMMISSIONERS

COUNTY PHARMACY LTDAppellant

- and -

HM REVENUE and CUSTOMSRespondents

DENNIS ALLEN HAYWOOD MORRISAppellant

- and -

HM REVENUE and CUSTOMSRespondents

Special Commissioner :Michael Tildesley OBE

Sitting in public in Birmingham on 14 July 2005

Dennis Morris appeared in person acting for himself and the Appellant Company in his capacity as managing director

Peter Death, HM Inspector of Taxes, for the Respondents

© CROWN COPYRIGHT 2005

1

DECISION

The Appeal

  1. Mr Morris was appealing against an assessment made on discovery for the year ended 5 April 2001 and against an amendment to his self assessment for the year ended 5 April 2002. Both Appeals concerned the alleged omission from his tax returns of the benefit of a car and car fuel made available to him by reason of his employment with County Pharmacy Ltd. The sums of tax involved were £5,097 for 2000/01 and £6,664 for 2001.02.
  2. County Pharmacy Ltd was appealing against a decision under section 8 of the Social Security Contributions (Transfer of Functions) Act 1999 that it was liable to pay Class 1A National Insurance Contributions for the period 6 April 2000 to 5 April 2002 in respect of the car and fuel benefit made available to Mr Morris in his employment as director. The sum involved was £2,881.25.

The Issues in Dispute

  1. The three Appeals shared the same issue in dispute which was whether a motor vehicle, an Elddis Autostratus (a motorhome) registration number S 203 YON, provided by County Pharmacy Ltd and available for private use by Mr Morris was a “car” within the meaning of section 168(5) of the Income and Corporation Taxes Act 1988 (hereinafter referred to as ICTA 1988). The Respondents contended that it was a car in which case Mr Morris was liable to pay tax on the car and fuel benefit, whilst County Pharmacy Ltd was liable to pay additional Class 1A National Insurance Contributions in respect of the said benefits. Mr Morris, on the other hand, submitted that the Elddis Autostratus was not a car. He proposed that the benefit of the vehicle to him should be taxed either on the basis that the Elddis Autostratus was a van or as an asset made available to him by his employer. In both situations his tax liability would be significantly less than an assessment based on the rules for car and fuel benefit.
  2. A supplemental issue in dispute arose during the course of the hearing which was whether the Respondents met the necessary conditions for making the discovery assessment for the year 2000/01. Where a tax payer has delivered a return no discovery assessment can be made under section 29 of the Taxes Management Act 1970 (hereinafter TMA 1970) unless one of two conditions was fulfilled. The Respondents relied upon the condition in section 29(5) of the TMA 1970 which was that the period for making enquiries into the return had expired and during that period an officer of the Board could not have been reasonably expected on the basis of information provided on behalf of Mr Morris to be aware that the assessment to tax was insufficient. The problem in this Appeal was that the Respondents had not retrieved Mr Morris’ return for 2000/01 so that they did not have the primary evidence of the information disclosed by Mr Morris about the tax treatment of the Elddis Autostratus. Instead the Respondents relied on computer records summarising Mr Morris’ return and the P11D submitted by his employer to justify the discovery assessment. The issues raised concerned:

(1)whether evidence of the tax return was essential for making the decision about whether the Respondents have complied with the condition of section 29(5) TMA 1970

(2)whether the legal burden of proving that the Respondents had complied with section 29(5) rested on the taxpayer or the Revenue.

The Evidence

  1. I heard evidence from Mr Morris, the Appellant, and Mrs Tracy Scott, HM Inspector of Taxes, who carried out an “Employer Compliance Review” of County Pharmacy Ltd between 10 March 2003 and 26 March 2003. I also received in evidence separate bundles of documents prepared by the Appellants and Respondents respectively.

The First Disputed Issue: Was the Elddis Autostratus registration number S 203 YON a car within the meaning of s 168(5) of ICTA 1968?

The Facts Found

  1. Mr Morris has been the Chairman and Managing Director of County Pharmacy Ltd since 1972, which traded from 15 Wordsley Green Shopping Centre, Wordsley, Stourbridge dispensing medicines and selling related goods to members of the public with an annual turnover in excess of £1 million.
  2. In August 1998 County Pharmacy Ltd purchased the Elddis Autostratus for use by Mr Morris who loaned the purchase price to the company. The price agreed between the Appellants and the Respondents for the purposes of the Appeal was £36,193 which included VAT. The vehicle was registered on 3 August 1998.
  3. The Explorer Group Ltd manufactured the Elddis range of motorhomes and marketed them as leisure vehicles. The motorhomes were not designed for the carriage of goods or for commercial use. The Elddis Autostratus provided to Mr Morris was 24 feet long, seven feet and three inches wide, weighed in excess of 3,550 kilograms and powered by 2.5 litre diesel engine . Mr Morris registered the vehicle with DVLA under the taxation class of “Private Light Goods”. The vehicle had not been modified to meet the specific needs of Mr Morris.
  4. The Elddis Autostratus was built on a Peugeot Boxer chassis, which included a cab for two people. The construction of the Autostratus, however, did not simply involve the placing of the living quarters on top of the chassis. According to Mr Morris the Boxer chassis was lengthened to support the living quarters which were incorporated with the cab, the back of which was removed, so as to form a single coach built vehicle. The living quarters incorporated cushioned seats which could be made into a bed, a fold down table, wall to wall cupboard units, an electric fire, a cooker, a sink and a portable television set.
  5. Mr Morris used the Elddis Autostratus principally as a mobile office where he kept the business records for County Pharmacy Ltd. He was unable to access the office at the shop premises because of his difficulties with climbing stairs. The office which was above the rear of the shop was later converted into a storeroom. Mr Morris’ normal routine would be to work from the Elddis Autostratus in the morning when it was stationary outside his home. At 1.30pm he would drive the vehicle a short distance to Wordsley Green Shopping Parade, park it at the rear of the shop where he continued his work. The vehicle was also used for the weekly visit to the cash and carry to obtain stock for the business. Mr Morris occasionally used the vehicle for leisure purposes, travelling once to Lymington and on another occasion to Scotland. The recorded mileage for the Elddis Autostratus in October 2002 was 15,911 miles.
  6. The Elddis Autostratus was insured and taxed for private and business use. Mr Morris accepted that his company did not prohibit him from using the vehicle for private use. Mr Morris made no financial contribution to County Pharmacy Ltd for his personal use of the vehicle. The fuel for the vehicle was charged to the Company account.
  7. In 2001 Mr Bourne, VAT Inspector, conducted an inspection of the VAT accounts and records of County Pharmacy Ltd. He advised Mr Morris that it was not necessary to pay scale charges on the fuel for the Elddis Autostratus as it was a van not a car and that it was a “company burden”. Mr Morris in turn informed his accountant of the advice who decided that the vehicle should be declared as a van for the purposes of employee benefits under the income tax legislation. Thus Mr Morris declared the Elddis Autostratus as a taxable benefit under the “vans” category in his 2000/01 and 2001/02 tax return. Previously County Pharmacy Ltd had declared another Elddis Autostratus as car benefit in the 1999/2000 P11D for Mrs Morris, the Appellant’s wife.
  8. In March 2003 Mrs Scott, HM Inspector of Taxes, carried out an “Employer Compliance Review” of County Pharmacy Ltd. She noticed a change of description from a car to a van on the P11D for Mr Morris. Mrs Scott formed the view that the Elldis Autostratus should be classed as a car for the purpose of calculating employee benefits for income tax. Mrs Sellars, Compliance Officer, issued assessments for unpaid tax for the years 2000/01 and 2001/02 on 7 April 2004 and 13 May 2004 respectively.
  9. Mr Morris suffered permanent damage to his hip joints by the constant jumping in and out of the Elddis Autostratus. He also experienced vertigo from the rocking movement of the vehicle whilst working inside it. At the time of Mrs Scott’s visit Mr Morris was in the process of exchanging the Elddis Autostratus for a newer version which had an automatic outside step with the living area located between the four wheels of the vehicle. The redesigned living area would make the vehicle more stable to work in which would alleviate the vertigo symptoms. As a result of his dispute with HM Revenue and Customs Mr Morris attempted to cancel the purchase of the new vehicle. He was unable to do so and the new vehicle has not been moved from outside his house pending the resolution of this dispute.

The Law

  1. Section 167 of ICTA 1988 applies the rules regarding taxation of car and fuel benefits to employed directors earning £8,500 or more per annum. County Pharmacy Ltd employed Mr Morris as managing director. His earnings exceeded £8,500 per annum.
  2. Section 157 of ICTA 1988 sets out the rules for the taxation of car benefit:

1) Where in any year in the case of a person employed in employment to which this Chapter applies, a car is made available (without any transfer of the property in it) either to himself or to others being members of his family or household, and -

  1. it is so made available by reason of his employment and it is in that year available for his or their private use; and
  2. the benefit of the car is not (apart from this section) chargeable to tax as the employee’s income,

there is to be treated as emoluments of the employment, and accordingly chargeable to income tax under Schedule E, an amount equal to whatever is the cash equivalent benefit in that year.

2) The cash equivalent of the benefit in the year concerned shall be ascertained in accordance with Schedule 6.

  1. Mr Morris accepted that the requirements of section 157 were met in respect of the provision of Elddis Autostratus to him except for the requirement that the vehicle was not a car. Thus County Pharmacy Ltd made the Elddis Autostatus available to Mr Morris by reason of his employment. Mr Morris agreed that the vehicle was insured and taxed and that it was available for his personal use.
  2. Where fuel is provided for a car the benefit of which is chargeable to tax under section 157 of ICTA 1988, section 158 of ICTA 1988 imposes a scale charge based on the type of fuel used and the size of the car’s engine. Mr Morris accepted that County Pharmacy Ltd paid for the fuel used in the Elddis Autostratus. He made no personal contribution to the cost of the fuel.
  3. Section 168(5)(a) of ICTA 1988 defines “car” for the purposes of section 157 of ICTA 1988:

“car” means any mechanically propelled road vehicle except –

i)a vehicle of a construction primarily suited for the conveyance of goods or burden of any description,

ii)a vehicle of a type not commonly used as a private vehicle and unsuitable to be so used,

iii)a motor cycle as defined in section 190(4) of the Road Traffic Act 1972, and

iv)an invalid carriage as defined in section 190(5) of that Act.

  1. Thus Mr Morris has to demonstrate on the balance of probabilities that the Elddis Autostratus was not a “car” as defined in section 168(5)(a) ICTA 1988 to avoid paying the additional tax due by the application of sections 157 and 158 ICTA to the provision of the Elddis Autostratus and the fuel to him by his employer, County Pharmacy Ltd. I am satisfied that the Elddis Autostratus was a mechanically propelled vehicle. The question about whether it was a “car” for income tax purposes depended upon whether Mr Morris can show that the vehicle fell within one of the four exceptions to section 168(5)(a) ICTA1988. Clearly exceptions iii) and iv) dealing with a motor cycle and an invalid carriage did not apply to the Elddis Autostratus.

My Decision on whether the Elddis Autostratus was a Car

  1. Exception i) to section 168(5) (a) ICTA 1988 concerns a vehicle of a construction primarily suited for the conveyance of goods or burden of any description. The facts found showed that the construction of the Elddis Autostratus was primarily suited for leisure purposes. The vehicle was equipped with fixed and moveable furniture, washing and cooking facilities and heating apparatus. The construction was ill-equipped for the conveyance of goods. The means of access to the vehicle were doors designed for the access of people not goods. The fact that Mr Morris used the vehicle for the carriage of business stock between the cash and carry and his shop was irrelevant. Exception i) was concerned with the vehicle’s construction not the actual use the specific vehicle was put to by its owner.
  2. The other aspect of exception i): “carriage of a burden of any description”, implied that the burden must be separate and apart from the vehicle and capable of being loaded on and off the vehicle. The facts found demonstrated that the Elddis Autostratus did not consist of two separate parts: the chassis and the cab of one part and the living quarters of the other part. The Autostratus was constructed as a single integral unit. I am, therefore, satisfied that exception i) of section 168(5)(a) did not apply to the Elddis Autostratus.
  3. Exception ii) excludes vehicles which were of a type not commonly used as private vehicles and unsuitable to be so used. Millet J in Gurney v Richards [1989] 62 TC 287 at 299 stated that exception ii) should be applied to “the vehicle in the condition in which it was provided to the taxpayer and in which it was expected to be used by him” Megarry J in Roberts v Granda TV Rental Ltd [1970]46 TC 295 examined the meaning of the phrase: “of a type not commonly used as private vehicles and unsuitable to be so used” in the then legislation (proviso to section 16(3) of the Finance Act 1954) of dealing with investment allowances which used identical wording to that in exception ii) of section 168(5)(a) ICTA 1988.
  4. The proviso to section 16(3) of the Finance Act 1954 read as follows:

“Provided that no investment allowance shall be made under this subsection in respect of expenditure incurred on the provision of road vehicles unless they are of a type not commonly used as private vehicles and unsuitable to be so used or are provided wholly or mainly for hire to or for the carriage of members of the public in the ordinary course of a trade”.

Megarry J noted at 310 that the phrase: “of a type not commonly used as private vehicles and unsuitable to be so used” consisted of a double condition, namely, “of a type not commonly used as private vehicle” and also of being “unsuitable to be so used”. At 313 Megarry J stated that “type is a word not used at any very high level of abstraction: instead of a few broad categories there may be many categories, with a vehicle moving from one to the other with comparatively small alterations”. Megarry J then went on at 316 to examine the construction of the remaining parts of the phrase. “Private” was used in the sense of domestic, pleasure or social purposes. “Suitable” bore the meaning of fitted for, adapted or appropriate, and “unsuitable” the opposite meaning. “Commonly” meant usually or ordinarily or generally, though not necessarily in the sense of constituting a majority.

  1. The facts found in this Appeal were that

(1)The Elddis Autostratus provided to Mr Morris was constructed for use as a leisure vehicle.

(2)The living quarters of the vehicle had cushioned seats which could be made into a bed, foldaway table, wall to wall cupboards, sink, electric fire, cooker and portable television.

(3)There had been no adaptations to the construction of the Elddis Autostratus to meet the specific requirements of Mr Morris.

(4)Mr Morris used the Elddis Autostratus principally for the purposes of a mobile office and fetching goods from the cash and carry. The construction of the vehicle was unsuitable for these uses.