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Car and fuel charges under the spotlight

By Gabelle LLP

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In the case of Southern Aerial (Communications) Ltd, Mr Trevor Jones, Mrs Sandra Jones v HMRC (TC/2014/02786 & TC04692), published on 28 October 2015, the First-tier tribunal (FTT) ruled that the provision of cars was a taxable benefit in kind by reason of employment with the appellant company but that no fuel benefit arose.

The decision will be of interest to those taxpayers who are considering sheltering company car and fuel charges through the use of a third party structure and are seeking clarity on what is meant “by reason of employment”.


Mr and Mrs Jones (‘’the taxpayers’’) are the only directors and shareholders in the appellant company (‘’the appellant’’). They are equal partners in the SAT Design Partnership (SAT) which was formed in 2002 on the advice of their accountant. The taxpayers view was that the partnership was set up for business reasons but the FTT commented that on balance of probabilities it was set up primarily to hold cars outside the company to avoid the benefit charges.

The appellant entered into two separate hire purchase contracts in 2007 for the provision of two BMWs to be made available to each of the taxpayers. The contract was in the name of the appellant and it was the appellant who was legally obliged to make all payments to the hire purchase company and did so direct from its company bank account.

As with all hire purchase agreements, the hire purchase company remained the owner of the vehicles until the final payments were made.

The amounts paid by the appellant were not reflected in either its profit and loss account or its balance sheet. The interest charges under the HP agreement were paid by SAT albeit via a net off of fees charged by the partnership to the company.

As the vehicles were not owned by the company by virtue of the HP agreements and the costs were met by the partnership, the taxpayers’ did not believe a taxable benefit under the company car rules arose. HMRC disagreed maintaining that the cars were provided by reason of their employment with the company and issued determinations and assessments to which the taxpayers subsequently appealed. The company also appealed against the Class 1A NIC charges.


The main discussion centred on whether the vehicles had been made available by reason of the taxpayers’ employment with the appellant.

HMRC argued that the treatment in the accounts was irrelevant and that the question to be asked, citing the judgement of Oliver J in the Firth cases, was ‘’what is it that enables the person concerned to enjoy the benefit?’’ The FTT agreed with HMRC on this point. The relationship between the appellant and SAT was one of total dependency of the latter on the former and the FTT therefore held that the vehicles were made available to the taxpayers by reason of their employment as directors of the appellant.

The FTT commented that despite the commercial arrangements whereby the partnership met the costs under the HP contracts, this cannot override the effect of the HP contracts which were entered into by the company and could not legally be transferred to the taxpayers. The cars were delivered to the company and they had the legal right to make the car available to the taxpayers. The FTT agreed that the benefit derived from employment with the company.

In respect of the car fuel charge, the FTT allowed the taxpayers’ appeal against the charge levied. The argument here was not whether the fuel was made available by reason of employment, but whether the company settled the cost of the fuel at all. This was found not to be the case as all fuel was paid by a credit card in SAT’s name which was then settled from SAT’s own bank account. As a partnership is transparent for tax purposes, it is therefore the taxpayers who were in effect paying for all of the fuel and not the appellant.

Why this matters 

This case is a good example of how the definition of ‘ by reason of employment’ can be interpreted by the Courts, especially in the provision of benefits by a third party. It emphasises how difficult it is to side step the charges by interposing a third party to the structure.

Accounting adjustments on their own will not be sufficient to convince the Courts that a benefit has not arisen. This is especially true where one entity is totally and economically dependent on another, as was the case with the appellant company and SAT.

The case also underlines the different tests in measuring the car fuel benefit and that it does not necessarily follow that when a car is made available in such circumstances that a car fuel charge will also arise.

Published November 2015