Tax-free cars?

Many county cricketers receive personal sponsorship from third parties, for example provision of a courtesy car with the supplier firm's name displayed boldly on the vehicle.

The question is whether such arrangements come under section 154, Taxes Act 1988 as being 'by reason of his employment'. In some cases I have been successful in arguing against this, in others not.

In every case the Inland Revenue has sought to use Wicks v Firth [1983] STC 25 in an attempt to widen the tax net way beyond what is stated in section 154. This is despite the judgments in Mairs v Haughey [1993] STC 569 and Wilcock v Eve [1995] STC 18 when it was held that the 'from' and 'by reason of' tests are now virtually synonymous.

Do readers consider that the judgment in Hochstrasser v Mayes 38 TC 673, determined in 1959, would be decided differently in 2001 for a higher rate tax employer? And, if so why?

(Query T15,897) — H.D.

Reply from Leyborne

It is true that the various cases quoted do not give a clear limitation to the meaning of 'from the employment' or 'by reason of the employment'. The Revenue manuals acknowledge this but, to the cynical eye of the tax adviser, use this as an excuse to regard the meanings as approximating to 'whatever we want them to be'.

It is certainly true that the test in Wicks v Firth (which the Revenue likes) does appear to be inconsistent with the other cases. Lord Denning seemed to suggest that the fact that a person would not have enjoyed the benefit but for being an employee was enough to make the benefit arise 'by reason of the employment'. It is hard to imagine how something provided by an employer, and received by an employee, would not be caught by this.

One thread which runs through Mairs v Haughey, Hochstrasser v Mayes and Wilcock v Eve is that the taxpayer was able to offer some other reason for the payment, independent of the employment — respectively, a payment for giving up redundancy rights; the ownership of a house; and rights under a cancelled share option scheme. It is harder to argue that something does not arise from the employment if there is nothing else for it to have arisen from.

The most significant difference between Wicks v Firth and the other cases is that the first was about benefits and the others were about payments of money. The charge on benefits (section 154, Taxes Act 1988 in general — or section 157 for cars) is 'by reason of the employment', while the charge on 'emoluments' (section 19) is 'therefrom'. I am not convinced that Mairs v Haughey and Wilcock v Eve have established that the expressions, or the tests, are 'virtually synonymous'. It still seems that it is harder to take a benefit provided out of the scope of Schedule E than it is to exclude a cash payment.

I am also not convinced that this goes beyond the intention of Parliament as set out in the words of section 154. Why should such a thing not be taxable? In short, it is hard to imagine how a car provided to a person because that person is a county cricketer arises other than 'by reason of the employment', even if it is provided by someone other than the employer. In the context of the three 'payment' cases, what other reason could be given for it? Either under section 19 or under section 154, there is no need for something to come from the immediate employer to be taxable — it simply has to be something earned for being an employee. As a 'profit' of being an employed cricketer, the benefit of the company car is taxable.

If 'H.D.' has succeeded on occasion in persuading an Inspector that this is not a taxable emolument, I think he should be satisfied with that! Perhaps the point to begrudge is that there is a much stronger argument that a self-employed person in the same situation would not be taxable, because there are no 'benefit in kind' provisions for Schedule D.

Reply from Jim

It is considered that the juxtaposition of the two specific queries has no correlation. Whilst a theoretical response may be provided to the latter point, Hochstrasser v Mayes bore no relevance to benefits in kind but centred on compensation for the loss on sale of a house upon transfer. Specifically, Lord Radcliffe observed that the payment was made to the employee in his capacity as a homeowner, not in return for being an employee.

As for whether a twelve-year gap might provide a different view, 'H.D.' needs to consider further cases to compare his choice of 'from' and 'by reason of'. For example, Mairs v Haughey has been quoted; here an ex gratia payment from the Department of Economic Development for waiving rights under a non-statutory redundancy scheme was partly considered not to be an emolument from the employment, nor a benefit. 'H.D.' could have considered another Government department - the GCHQ. The payments of £1,000 to these employees (for loss of trade union rights), in the case of Hamblett v Godfrey [1987] STC 60, were taxable in full as there was an option of seeking a transfer — or remaining a GCHQ employee.

The distinction may be more apparent in the case of Moorhouse v Dooland 36 TC 1 in that a voluntary payment is chargeable if it stems from the employment, irrespective of whether the generosity of the payer is a factor. Here, spectator collections for meritorious performances of professional cricketers were decidedly assessable under Schedule E. (Another cricketing case, Reed v Seymour 11 TC 625 decided that the proceeds of a benefit match of a county player should not be assessable as the proceeds awarded were in the nature of a personal gift.)

The above two examples bring us nicely to the querist's opening bat, and could I firstly express some concern at the reference to the limited success in arguments with the Revenue as to whether the provision of a courtesy car in such circumstances is a taxable benefit or not. An individual is assessed on a car benefit if he has private use of someone else's car 'by reason of his employment' under section 157(1), Taxes Act 1988. There does not have to be any connection between the cricket club and the sponsor. Lord Denning's detailed summary in Wicks v Firth should leave little doubt that employment is the cause of the benefit in this situation.

The Revenue's Schedule E Manual gives clear confirmation that it will seek to tax sportsmen in these circumstances

Issue: 3830 / Categories: