Tribunal: Leased cars can still be taxable benefits
The First-Tier Tribunal has found in favour of HMRC’s arguments that cars leased by employees from their employer still gave rise to taxable benefits in kind.
There were no significant disputes between the taxpayer and HMRC as to the facts in this case. In 2003, the employer replaced arrangements whereby employees had been provided with company cars and entered into new arrangements with its employees. Under these new arrangements, the employer’s holding company bought a number of cars and leased them to the employer. The employer in turn leased the cars to certain employees.
Following a PAYE audit visit, HMRC formed the view that the cars gave rise to a benefit in kind, that the scale benefits of both the car and fuel were taxable, that the mileage allowances gave rise to further taxable benefits and that some mileage allowance payments had related to private use.
The Tribunal case was taken by the taxpayers who are directors of the business that leased the cars and appealed HMRC’s decision. All parties agreed that the taxpayers’ appeals would be test cases which determined the taxability of the car arrangements and would be applicable to other employees with similar arrangements.
The directors appeal was based on the fact that because the directors were charged for the use of the cars, the leases should not be treated as falling within s 114(a) ITEPA 2003. The First-tier Tribunal rejected this notion and dismissed the appeals. The Tribunal also held that tax was chargeable on payments of ‘mileage allowances’ to the directors.