Income tax – National Insurance contributions – benefits in kind – cars available for private use – Sections 154, 156 and 157 ICTA 1988 – share of car purchased by employee – car in joint ownership – whether car “made available (without any transfer of the property in it)” for purposes of Section 157(1) ICTA 1988 – whether employer’s share in car placed at employee’s disposal for his use for the purposes of Section 156(5) ICTA 1988

THE SPECIAL COMMISSIONERS

                                                    S.A.VASILI	Appellant

	- and -

             M CHRISTENSEN
	 (H M Inspector of Taxes)    	Respondent

				Special Commissioner:  MR A. EDWARD SADLER

Sitting in London on 4 July 2003

Mr Robert Grierson of Counsel, instructed by Mr P Maclaren, Chartered Accountant, for the Appellant

Mr Sam Grodzinski of Counsel, instructed by the Solicitor of Inland Revenue for the Respondent

© CROWN COPYRIGHT 2003

DECISION

The appeal and the agreed facts

1	This is an appeal by the Appellant taxpayer, Mr Vasili, against the Inspector’s amended self-assessment dated 11 December 2002 for the two tax years ending 5 April 1999 and 5 April 2001.  I am required to give a decision in principle, the parties having agreed the figures which will apply according to the decision in principle.  The matter under appeal raises similar issues for liability to make National Insurance contributions, and the parties have further agreed that such liability will follow the decision in principle on the income tax charge.

2	The appeal concerns the application of the income tax benefit in kind provisions relating to cars and fuel benefit in circumstances where the employee has acquired from his employer a part-share in the car.  On the face of it the appeal involves a short point of statutory interpretation, but as will appear it raises a wider question of the way in which the car and fuel benefit provisions apply where the car is jointly owned by the employer and the employee.  Mr Vasili argues that the company of which he is a director has transferred to him, as a director, a share in the property in the car and that accordingly he is outside the scope of the provisions in Section 157 Income and Corporation Taxes Act 1988 (“ICTA”) which impose an income tax charge on the “cash equivalent” of the benefit of the car:  he argues that instead he should be charged to tax on the more favourable basis applicable to benefits in kind generally under the provisions of Sections 154 and 156 ICTA.  The Inspector argues that Section 157 ICTA applies unless the car has been transferred in its entirety to Mr Vasili, which it has not.

3	The material facts are straightforward and are set out in a statement agreed by the parties in the following terms:-

3.1	On 20 August 1997 HMSL Ltd [the company of which Mr Vasili was at all material times a director] purchased from a car dealer a second-hand Ferrari 412 car registration number F130 UOT.
3.2	HMSL Ltd purchased the Ferrari car for the sum of £37,995.
3.3	On 25 August 1997 HMSL Ltd transferred a 5% share in the Ferrari car to Mr Vasili in return for a payment of £1,889.75 made by Mr Vasili.
3.4	The Ferrari car was delivered to HMSL Ltd by the dealer on 25 August 1997 and was made available to Mr Vasili to use from that date.
3.5	The Ferrari car was disposed of [by HMSL Ltd] to Mr Vasili on 7 December 1998 for £20,000, this being an independent valuation of the car at 9 July 1998.
3.6	On 7 December 1998 HMSL Ltd purchased from a car dealer a second-hand BMW 750I Auto E38 car registration number P438 KAV.
3.7	HMSL Ltd purchased the BMW car for the sum of £37,500.
3.8	On 7 December 1998 HMSL Ltd transferred a 5% share in the BMW car to Mr Vasili in return for a payment of £1,875 made by Mr Vasili.
3.9	The BMW car was delivered to HMSL Ltd by the dealer on 7 December 1998 and was made available to Mr Vasili to use from that date.
3.10	HMSL Ltd disposed of its 95% share in the BMW car to Mr Vasili at a value agreed by a BMW dealership in 2002.

4	The parties also agreed in their statement certain figures concerning the running costs of the two cars and the private and business mileage use of the cars, but those figures are not material to the decision in principle:  it is sufficient to note that in the relevant tax years the respective cars were used by Mr Vasili in part for the company’s business and in part for his private purposes, and that the private mileage, as a percentage of the total mileage, exceeded significantly the figure of 5% which corresponded to the ownership share of Mr Vasili in the car.

5	At the hearing the parties adopted the common position that it is possible that the legal ownership of a car is held jointly whilst there is divisible ownership of the equitable interest in the car, and that this was the construction to be placed on the ownership of the cars following the transactions entered into by HMSL Ltd and Mr Vasili.  The natural presumption from the facts is that the legal ownership was held by HMSL Ltd and Mr Vasili jointly as joint tenants whilst the equitable interest was held by them as tenants in common in a 95:5 ratio.

6	At the hearing no further evidence was presented by either party.

The relevant legislation

7	Section 154 ICTA, so far as relevant to this appeal, provides as follows:-

(1)	Subject to section 163, where in any year a person employed in employment to which this Chapter applies and – 

(a)	by reason of his employment there is provided for him, or for others being members of his family or household, any benefit to which this section applies; and
(b)		the cost of providing the benefit is not (apart from this section) chargeable to tax as his 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 of the benefit.

(2)	The benefits to which this section applies are accommodation (other than living accommodation), entertainment, domestic or other services, and other benefits and facilities of whatsoever nature (whether or not similar to any of those mentioned above in this subsection), excluding however – 

(a)	…; and
(b)	any benefit chargeable under section 157….

(3)	For the purposes of this section and section …156, the persons providing a benefit are those at whose cost the provision is made.

8	The relevant provisions of section 156 ICTA are as follows:-

(1)	The cash equivalent of any benefit chargeable to tax under section 154 is an amount equal to the cost of the benefit, less so much (if any) of it as is made good by the employee to those providing the benefit.

(2)	Subject to the following subsections, the cost of a benefit is the amount of any expense incurred in or in connection with its provision, and (here and in those subsections) includes a proper proportion of any expense relating partly to the benefit and partly to other matters.

(3)	Where the benefit consists in the transfer of an asset by any person, and since that person acquired or produced the asset it has been used or has depreciated, the cost of the benefit is deemed to be the market value of the asset at the time of transfer.

(4)	….

(5)	Where the benefit consists in an asset being placed at the employee’s disposal, or at the disposal of others being members of his family or household, for his or their use (without any transfer of the property in the asset), or of its being used wholly or partly for his or their purposes, then the cost of the benefit in any year is deemed to be – 

(a)	the annual value of the use of the asset ascertained under subsection (6) below; plus
(b)	the total of any expense incurred in or in connection with the provision of the benefit excluding – 
(i)	the expense of acquiring or producing it incurred by the person to whom the asset belongs; and
(ii)	any rent or hire charge payable for the asset by those providing the benefit.

(6)	Subject to subsection (7) below, the annual value of the use of the asset, for the purposes of subsection (5) above –

(a)	in the case of land, is its annual value determined in accordance with section 837; and
(b)	in any other case is 20 per cent of its market value at the time when it was first applied (by those providing the benefit in questions) in the provision of any benefit for a person, or for members of his family or household, by reason of his employment….

9	The relevant provisions of Section 157 ICTA are as follows:-

(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 –

(a)	it is so made available by reason of his employment and it is in that year available for his or their private use; and
(b)	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 of that benefit in that year.

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

10	Therefore, the scheme of the legislation is such that it is necessary first to discover whether the benefit is chargeable under the provisions of Section 157 ICTA – if it is, that disposes of the matter, since Section 157 ICTA both imposes the charge (to the exclusion of the charge on general benefits in kind) and (by reference to Schedule 6 ICTA) specifies the amount which is chargeable to tax.  If the benefit is not chargeable under Section 157 ICTA, the next question is whether it is chargeable under the general benefit in kind provisions of Section 154 ICTA, and if it is, it is then necessary to enquire how Section 156 ICTA applies to determine the amount which is taxable.  If the benefit is not chargeable under Section 154 ICTA, it is necessary to determine whether the benefit is an “emolument” for the purposes of Section 131 ICTA, and thus chargeable within the general Schedule E provisions – and if so, how the benefit as an “emolument” is quantified for the purposes of the Schedule E charge.  It should be noted, in passing, that for the purposes of both Section 154 ICTA and Section 157 ICTA, Mr Vasili is to be regarded as a person who is employed in employment to which those sections apply.

The case argued by each party

11	Mr Grierson’s case, on behalf of Mr Vasili, is that Section 157 ICTA does not apply in the circumstances of this case.  He argues that there has been a transfer of the property in each of the cars by the company to Mr Vasili, so that it cannot be said, as the section requires, that “…a car is made available (without any transfer of the property in it)” to Mr Vasili.  In his submission, the phrase “without any transfer of the property in it” covers not only the case where the entire ownership of the car is transferred, but also the case where part ownership of the car is transferred:  this gives meaning to “any transfer”, that is, partial transfer as well as entire transfer.  He argues that it is the natural inference that a partial transfer of the property should be encompassed within the phrase “without any transfer of the property”, and that if Parliament had intended that only entire transfers, or transfers of the entire property, should disapply Section 157 ICTA, that could easily have been made clear by some other formulation, such as, “…a car is made available (without transferring the property in it)….”  

12	Mr Grierson accepts that in this case the transfer of the 5% share in the car by the company to Mr Vasili was made with the intention of taking the circumstances outside the scope of the charge imposed by Section 157 ICTA, but neither the motivation of the taxpayer, nor the modest portion of the share in the car held by Mr Vasili as a result of the transfer, should affect the proper interpretation and application of the statutory provisions.  He also points out that where the Section 157 ICTA charge applies, the taxpayer is taxed on a specified percentage of the value of the entire car (with no provision for abatement in the case of part ownership), and that if the charge applies notwithstanding that a share in the car has been transferred to the employee, that works harshly in any case where the employee has purchased a substantial share in the car.

13	For the Inspector, Mr Grodzinski’s primary submission is that Section 157 ICTA applies unless ownership of the car is transferred as a whole by the employer to the employee.  He argues that in the phrase “without any transfer of the property in [the car]”, the word “any” qualifies “transfer”, and not “property”, so that any type of transfer (for example, by gift or sale at an undervalue) is contemplated, but it must be a transfer of “the property” in the car, that is, the whole of the property.  For the phrase to have the meaning which the taxpayer places on it, the phrase must be recast to read, “without any transfer of any property in [the car]”.

14	Mr Grodzinski seeks support for his argument in the scheme of Section 156 (5) ICTA (which is not in point if Section 157 ICTA applies – see Section 154 (2)(b) – but which uses similar concepts).  Section 156(5) ICTA specifies the measure of the charge where the benefit consists in an asset being placed at the employee’s disposal “for his … use (without any transfer of the property in the asset)”:  in such a case the quantum of the benefit is specified in subsections (a) and (b), and there is excluded in (b)(i) “the expense of acquiring or producing [the asset] incurred by the person to whom the asset belongs”.  Thus, he argues, when Section 156(5) ICTA is referring to an asset being placed at the employee’s disposal “for his … use (without any transfer of the property in the asset)”, it is envisaged that this is a situation where the asset will still “belong” to the employer, that is, will still be in the complete ownership of the employer – and so “any transfer of the property in the asset” can only mean any transfer of the whole of the property.  If it meant any transfer of part of the property in the asset, the asset could not then be said to “belong” to the employer, since ownership would be split between employer and employee.  When the same concept of an asset (specifically, a car) being made available by the employer without any transfer of the property in it is used in Section 157 ICTA it must be read to have the same meaning, even though the concept of “belonging” does not appear in Section 157 ICTA to shed light on the meaning and purpose of the concept.

15	In further support of this line of argument Mr Grodzinski refers to the legislative history of Section 157 ICTA and the Parliamentary debate at the Committee Stage of the relevant Finance Bill (he acknowledges that the report of the Committee Stage can be scrutinised as an aid to interpreting the meaning of the legislation only if there is an ambiguity in the meaning of the section, under the rule in Pepper v Hart [1993] AC 593, and that the Revenue’s primary submission is that the relevant language is clear and unambiguous in its meaning).  He points out that the relevant part of Section 157 ICTA is materially identical to its predecessor, Section 64(1) of the Finance Act 1976, which was introduced as Clause 55 of the Finance Bill 1976.  The material part of Clause 55 read as follows:-

“Where in any year there is made available to a person employed in director’s or higher-paid employment or to others being members of his family or household a car not belonging to him or any of those others….” [emphasis added]

This “belonging” language was replaced at the Committee Stage by Government amendment so that the clause was enacted in the language we now find in Section 157 ICTA.  According to the Financial Secretary, the change to the current language was made to prevent avoidance of tax where a person employed a member of his own family and provided a car by reason of the employment (see Hansard Report, 22 June 1976 at p 1042).  Corresponding changes were made to the clause in the Finance Bill which is now Section 156(5) ICTA.  Thus, Mr Grodzinski argues, the language, “without any transfer of the property in it” was intended to be synonymous with the “belonging” language it replaced (the change in language having been made to deal with a quite different issue), and should be interpreted accordingly.

16	As to what it means for a car or other asset to “belong” to a person, Mr Grodzinski refers to the capital allowances case of Melluish (HMIT) v BMI (No 3) Ltd [1995] STC 964.  He refers to the speech of Lord Browne-Wilkinson (at p 974):-

“I therefore reach the conclusion that for the purposes of section 44 [of the Finance Act 1971] property belongs to a person if he is, in law or in equity, the absolute owner of it.  Such a construction reflects the obvious, prima facie, meaning of the word:  what belongs to me is what I own.  It produces a coherent and easily applicable formula and, save in relation to fixtures, avoids anomalous results.  I am fortified in this conclusion by the decision of the Court of Appeal in Stokes v Costain Property Investments Ltd [1984] STC 204….Fox LJ said [1984] STC 204 at 209:

‘I agree that “belong” and “belonging” are not terms of art.  They are ordinary English words.  It seems to me that, in ordinary usage, they would not be satisfied by limited interests.  For example, I do not think one would say that a chattel “belongs to X” if he merely had the right to use it for five years.’

Robert Goff LJ (as he then was) treated the expression ‘belonging to’ as the same as ‘owned by’.  In my judgment that case was rightly decided.”

In Mr Grodzinski’s submission there can be no “partial belonging”:  Section 157 ICTA is intended to deal with the situation in which the car belongs, in whole, to the employer.  Accordingly “without any transfer of the property in it” must mean “without ownership having been transferred” – in any other situation, and in particular in the limited transfer of the property in the car in Mr Vasili’s case, the car still “belongs” to the employer.

17	Mr Grierson rejects this extended argument on “belonging”:  he points out that the discussion of the concept in Melluish v BMI (No 3) Ltd is set in the context of the ownership of plant and machinery which are fixtures to land, where different considerations apply.  There is, in any event, nothing in Lord Browne-Wilkinson’s speech which deals with co-ownership of a chattel where there is a “vertical division” of the entire legal and beneficial ownership, and where it can rightly be said that the asset “belongs” to the co-owners in specified shares.

The decision

18	As stated at para. 10, the first question I have to decide is whether, on the facts as agreed, Mr Vasili has received a benefit which is within the income tax charge imposed by Section 157 ICTA.  In my judgment Mr Vasili is not in receipt of a benefit within the scope of that section.  Section 157 ICTA is not apt to deal with the case where the car is owned jointly by the employer and the employee.

19	The arguments put to me centred on the words, “…a car is made available (without any transfer of the property in it)…to [the employee]…and it is so made available by reason of his employment…”, and especially on the words “without any transfer of the property in it”.  However, it is necessary to take a step back in order to see the scope of the section.  These provisions are directed at the situation, which is no doubt the norm, where the employer owns the car and the employee has the right to use it, but has no ownership right in or to the car.  This is in distinction from the case where the employer owns the car and provides the benefit by transferring ownership of the car to the employee by way of gift or sale at an undervalue (in that case, the general benefit in kind provisions of Section 154 ICTA apply, and Section 156(2) and (3) provide the measure of the cash equivalent which is charged to income tax – the expense incurred by the employer in providing the car, but its market value if the employer has used the car between acquiring it and transferring it to the employee:  for example where the employer purchases the car, allows the employee to use it under a company car scheme, and then sells it on at an undervalue to the employee).

20	Under the Section 157 ICTA charge, the cash equivalent (under the rules applicable to the tax years which are the subject of this appeal – those rules have since changed) for the relevant tax year is calculated as provided in Schedule 6 ICTA as a specified percentage of the price of the car, reduced to take account of a number of factors, including the extent to which the car is used for business travel, the engine size of the car, and any payments made by the employee for the use of the car.

21	Significantly, there is no provision for reducing the amount of the cash equivalent if the car is part-owned by the employer and part-owned by the employee:  and that is so because it is not a state of affairs which is contemplated by Section 157 ICTA.  In the present case, Mr Vasili acquired his part-ownership of the car by taking a transfer of the share in the car from the employer:  he did so in the belief (or hope) that such transfer brings him within the words “any transfer of the property in [the car]”.  But once we are considering these provisions in the context of co-ownership of a car by employer and employee we need to consider how they apply whether the co-ownership comes about from the employer transferring a share in the ownership to the employee, or from the employee (as the original owner of the entire car) transferring a share to the employer, or from the employer and employee jointly purchasing the car from the car dealer or other supplier.  In other words, we need to consider how they apply to the circumstance of co-ownership, not to the means whereby that came about (although if the employer transferred a part share to the employee at an undervalue, that transaction in itself would bring about a benefit in kind charge, under Section 156 (2) or (3), depending on the facts).

22	Seen in the general perspective of co-ownership between employer and employee, it is clear that Section 157 ICTA is not in point.  It cannot be said that in such a case “a car is made available” by the employer to the employee.  As co-owners the employer and employee each have the right to use the car, but they each have that right because they are each owners, not because one has “made available” the car to the other.  Of course, it may be that one co-owner (the employer) agrees not to exercise its right to use the car, or, put differently, agrees to exercise that right by allowing the other co-owner (the employee) exclusive use, and that arrangement in itself may be a benefit conferred by the employer on the employee, as discussed in paras. 28 and 29 below.  But that is not within the scope of Section 157 ICTA:  the section deals with the circumstance where “a car is made available”, not an interest in a car, or a part-share of a car.

23	If Section 157 ICTA were intended to deal with the situation of co-ownership, not only would it not be framed in terms of the employer “making available” a car to the employer, but there would, out of basic fairness, be provision in the cash equivalent rules in Schedule 6 ICTA to charge the employee only on a proportionate share of the percentage price of the car, that is, the proportion representing the share of the car owned by the employer.  As mentioned in para. 21, that is not the case – regardless of the share which the employee has purchased and holds as co-owner, if it is the case that Section 157 ICTA applies, he is charged on the specified percentage as though the car were entirely owned by the employer.  Mr Grodzinski initially offered the view that Section 168D ICTA dealt with this apparent unfairness.  That section applies “where the employee contributes a capital sum to expenditure on the provision of (a) the car, or (b) any qualifying accessories….”  In such a case, up to a capped limit of £5,000, the price of the car for the purposes of quantifying the cash equivalent chargeable under Section 157 ICTA is reduced by the amount of the capital contribution.  However, Mr Grodzinski conceded that Section 168D ICTA (which borrows language more familiar in the context of capital allowances) is dealing with the situation where the employee makes a capital payment to the employer who retains the entire ownership of the car (for example, where in a company car scheme an employee makes a payment to the employer to secure a better model than he is otherwise entitled to by the terms of the scheme).  It does not deal with the situation where the payment is made to purchase an interest in the car.  If anything, the terms of Section 168D ICTA, which is specifically related to the Section 157 ICTA charge, reinforce the view that Section 157 ICTA can apply only to the situation where the car is in the entire ownership of the employer.

24	It might be said that Mr Vasili has chosen to play with fire, taking a 5% share in the car to avoid a charge under Section 157 ICTA, and if this is so he should not complain if he is burnt by being taxed by reference to the full price of the car if the arrangement is ineffective.  But that will not do to justify the inequity of a charge based on the full price in the perhaps unusual, but not impossible, circumstance of the employee acquiring and holding a substantial share in the car jointly with his employer.

25	Mr Grodzinski made the different point that if the Section 157 ICTA charge is defeated by reason of the employee holding a co-ownership share in the car (or, in the narrower terms in which he viewed the section, by a transfer of a part share in the property in the car), this gives wide scope for avoidance, since a minimal share could be purchased by the employee  - 0.0001% in his illustration.  This would indeed seem to be the case, provided that on the facts the transaction can be established as genuine and effective.  But the point made does not lead to a different interpretation of the scope of Section 157 ICTA: co-ownership, however the shares are divided, and whatever the motives of the parties in entering into that relationship, is a different legal relationship from that of single ownership and (separate) use.  Section 157 ICTA deals with the latter, but not with the former.  Further, as referred to below, the result is not that the employee escapes a tax charge entirely under the benefits in kind legislation, but rather that the tax charge is related to the nature of the benefit he receives from the employer in the context of co-ownership of the car.

26	Once it is seen that Section 157 ICTA does not deal with the circumstance of a car which is in the co-ownership of the employer and the employee, it is clear that in the phrase, “…a car is made available (without any transfer of the property in it)…” the words “without any transfer of the property in it” serve the purpose of defining the scope of the section by making it clear that the section is dealing with the case where the benefit is a car made available to the employee for his use (whilst the car remains in the employer’s ownership) rather than the case where the benefit is a car made available in the sense of transferred to the employee.  The ingenious forensic analysis applied to interpret these words by the counsel for both parties is not required.  Nor is it necessary to refer back to the origins of the statutory language (although the original Finance Bill clause is entirely consistent with the view that the section does not deal with a car in co-ownership).  Moreover, the section, in its proper application, is also consistent with the concept, on which Mr Grodzinski placed much store, of “belonging” in the terms set out by Lord Browne-Wilkinson in Melluish v BMI (No 3) Ltd:  Section 157 ICTA is indeed dealing with the case where the car “belongs” to the employer – it is not dealing with the case where it “belongs” in part to someone else, namely the employee.

27	If the benefit provided to Mr Vasili is not taxed by Section 157 ICTA, the next question is whether there is a benefit which falls within the general benefit in kind provisions of Section 154 ICTA, and if there is, the further question arises as to the amount of the cash equivalent which determines the tax charge.

28	First, it is necessary to identify the benefit.  As I have already indicated, in the case of a car which is in the joint ownership of the employer and the employee, the employee has a right to use the car by virtue of his part ownership, as does the employer.  This is, I believe, a settled proposition in law:  Mr Grierson referred me to the case of IRC v Lloyds Private Banking Ltd (as trustee of Irene Maude Evans, dec’d) [1998] STC 559 for a recent application of that principle (in that case the asset was land, but the principle seems to be of equal application to any other asset capable of being owned jointly).  However, if the employer chooses to allow exclusive use of the car to the employee co-owner, that in itself is a benefit provided by the employer to the employee, since the employee is in receipt of a right (exclusive use) which does not flow from his capacity as co-owner.  This is so whether it is said that the employer has relinquished its rights of use or exercised them by allowing the employee exclusive use.  Further, since in a commercial arm’s length relationship (including that of employer and employee) one would expect the parties to have use of the jointly-owned asset in approximate proportion to their respective ownership interests (or for the party having disproportionately  greater use to compensate the other for that benefit), it is both logical and reasonable to relate the benefit to the ownership share from which the use has been relinquished.  Put more directly in the context of the facts of this appeal, if HSML Ltd as the employer has agreed that, notwithstanding its 95% ownership of the car, it will allow its employee Mr Vasili 100% of the use of the car (without payment for that use by Mr Vasili), then it is making available to him a benefit which is the use of its 95% interest in the car.

29	Such a benefit is clearly within the scope of Section 154 ICTA, which is in terms of  “…benefits and facilities of whatsoever nature…”.  As for the cash equivalent of the benefit, that is dealt with by Section 156(5) ICTA:  in a case such as this there is an asset placed at the employee’s disposal (the asset being, in effect, the 95% interest which HMSL Ltd has in the car and which “belongs” (exclusively) to HMSL Ltd) for the employee’s use without any transfer of the property in that asset.  The cash equivalent is the cost of that benefit, and the subsection tells us that the cost is deemed to be the “annual value” of the 95% interest (20% of it market value at the time when it was first applied in the provision of the benefit:  see Section 156(6) ICTA) plus any other expenses incurred in or in connection with the provision of the benefit, excluding the employer’s expense of acquiring that 95% interest.  If Mr Vasili made any payment to HMSL Ltd for his exclusive use of the car, that would have to be taken into account in reducing the cost of the benefit, as required by Section 156(1) ICTA.

30	In this way there is a sense and coherence to the benefits in kind legislation as it has to be applied in the circumstance of a car which is jointly owned by the employer and the employee.  The employee is taxed on the value of that which the employer owns and makes available to the employee.  The employee is not taxed on that which he enjoys by virtue of his own investment made in purchasing a part share in the car.

31	This is clearly so in the case where the car is used by the employee exclusively for his private purposes.  It will often be the case (as in the present appeal) that in part the car is used for the business purposes of the employer.  It would seem that where the car is so used, that can fairly be said to be use by the employer rather than the employee, and to that extent the employer is not providing a benefit in terms of relinquishing its rights of use in favour of the employee.  For example, if the car were jointly owned in equal shares by the employer and employee, and if the car were used equally for the business purposes of the employer and the private purposes of the employee, each would be exercising rights of use proportionately to ownership rights, and the employer would not be providing a benefit to the employee.  But if there is some element of benefit provided by the employer, if the private use of the car by the employee is disproportionately greater than the employee’s ownership rights (and that is so in Mr Vasili’s case), it would appear that the cash equivalent of that benefit does not take into account the business use made of the car.  For the purposes of Section 156(5) ICTA the asset placed at the employee’s disposal or used for the employee’s purposes is the employer’s share of the car, and there is no provision for reducing the cash equivalent of that benefit by reference to partial business use – quite the contrary, since the reference to the asset “being used wholly or partly for [the employee’s] purposes” indicates that the annual value charge is to apply in circumstances where the asset is used only in part for the benefit of the employee.

32	In his concluding remarks Mr Grodzinski pointed out that no evidence had been adduced that Mr Vasili had exclusive use of the car or that there was any agreement by HMSL Ltd to relinquish in his favour its right as owner of 95% of the car to use the car.  It is true that the point is not dealt with explicitly in the agreed statement of facts.  That statement was agreed, I understand, between the Inspector himself and Mr Vasili’s accountant adviser for a hearing of this appeal before the General Commissioners (at the Revenue’s insistence the appeal was transferred to the jurisdiction of the Special Commissioners).  Whilst it may lack some of the precision and detail which counsel for the parties in the appeal would no doubt have contributed had they settled the statement themselves, it is nevertheless succinct and to the point.  It is stated that “the car was delivered to the company by the dealer on 25 August 1997 and was made available to Mr Vasili to use from that same date.”  It is, however, agreed that there was some business use of the car by Mr Vasili, although far less than 95% of the total use. It is reasonable to infer from this, and indeed from the entirety of the arrangements, that the car was used, and used exclusively, by Mr Vasili (but used by him in part for his private use and in part for the business purposes of the employer) so that there was de facto an arrangement whereby HMSL Ltd made available to him the use of the car which otherwise it would have exercised itself as owner of the 95% interest in the car.

33	Accordingly, my decision is that Mr Vasili is not chargeable to tax under Section 157 ICTA in relation to his use of the two cars owned in succession by him jointly with HMSL Ltd.  He is, however, chargeable to tax under Section 154 ICTA on the benefit provided to him by HMSL Ltd:  that benefit consists in HMSL Ltd’s 95% share in each of those cars being made available to Mr Vasili for his use, and the cost of that benefit, for the purposes of determining the cash equivalent and the resulting tax charge, is determined under Section 156(5) ICTA.  Mr Vasili’s appeal is therefore to this extent allowed and the relevant self-assessments should be amended accordingly.

	

A EDWARD SADLER
SPECIAL COMMISSIONER

SC/3059/03