HM Revenue & Customs v Apollo Fuels Ltd & Ors & Anor

Under Chapter 6 of the Income Tax (Earnings and Pensions) Act 2003, the expression ‘benefit of the car’ has its ordinary meaning. A charge requires a real benefit to the employee. An arm’s-length lease at full market rent therefore produces no taxable benefit, despite the statutory valuation formula. For section 114(1)(a), ‘the property’ means the car’s general property or absolute ownership. A lease that merely limits the owner’s rights does not transfer that property. Section 114(3) is not engaged by a nil amount of earnings.

HMRC appealed from the Upper Tribunal (Tax and Chancery Chamber), which had upheld the First-tier Tribunal’s decision that employees were not liable to income tax on cars leased to them by companies in their employer group at full market rentals. The leases permitted private use and were accepted to be on arm’s-length commercial terms. The appeal concerned whether Chapter 6 of the Income Tax (Earnings and Pensions) Act 2003 applied, whether the leases involved a transfer of property in the cars, and whether mileage allowance payments were exempt. The Upper Tribunal had also decided that no related National Insurance contributions were due. The central questions were whether the leases conferred a taxable benefit and whether the statutory provisions nevertheless deemed one to exist.

Appeal dismissed. Lady Justice Sharp and Lord Justice Sales agreed with Lord Justice David Richards. The Court of Appeal upheld the result below, while differing on some of the reasoning.

1. Section 114(1)(a) of the Income Tax (Earnings and Pensions) Act 2003 concerns transfer of ‘the property’ in the car. That expression means the general property or absolute ownership. A lease may create rights more than purely contractual and may qualify the owner’s title, but it does not transfer the general property. The Upper Tribunal reached the correct result on this issue, although for the wrong reasons. The reasoning in On Demand Information plc v Michael Gerson (Finance) plc [2000] 1 WLR 155 supported that conclusion.
2. The phrase ‘benefit of the car’ in Chapter 6 retains its ordinary meaning. It is not merely a drafting formula describing the circumstances in which the statutory valuation provisions operate. Parliament could deem a full-value supply to be income, but clear words or necessary implication would be expected. The statutory use of a new-car price and CO2 emissions to calculate the cash equivalent does not remove the requirement for an actual benefit. London County Council v Attorney-General [1901] AC 26 and Forde & McHugh Ltd v Revenue & Customs Commissioners [2014] UKSC 14 supported that approach.
3. Mairs (Inspector of Taxes) v Haughey (1992) 66 TC 273 and Wilson (Inspector of Taxes) v Clayton [2003] EWCA Civ 1657; [2005] STC 157 provided significant support for treating fair bargains as outside benefits provisions, subject to the statutory context. An arm’s-length lease at full market value conferred no benefit in the ordinary sense. Chapter 6 therefore did not apply and no cash equivalent was taxable.
4. Alternatively, section 114(3) excludes Chapter 6 only where a positive amount constitutes earnings in respect of the benefit under another provision. A nil result under section 62 is not an amount. The Court therefore rejected the Upper Tribunal’s contrary reasoning on that issue.
5. The Court expressed an obiter view on mileage allowances. Section 236(2)(b) asks whether the cash equivalent is to be treated as earnings. A nil cash equivalent is not earnings and is not deemed to be earnings. The issue did not arise for decision because Chapter 6 did not apply. The Court expressed no view on the separate assessment issue under the Taxes Management Act 1970.

• Court of Appeal (Civil Division): dismissed HMRC’s appeal and upheld the conclusion that the full-value car leases produced no taxable benefit.
• Upper Tribunal (Tax and Chancery Chamber): upheld the First-tier Tribunal’s decision that no income tax or related National Insurance contributions were due in respect of the cars.
• First-tier Tribunal: found that the employees’ car leases were at full market value and that no tax or National Insurance contributions were payable in respect of the cars.