COMPLIANCE
What did the employers do to instigate their respective disputes? Laing O’Rourke and Willmott Dixon both operated car allowance schemes (i.e. company car or equivalent car allowance). Both had subjected the cash allowances to income tax and NICs in full as one might expect, under Section 62 of the Income Tax (Earnings and Pensions) Act (ITEPA) 2003 5 . It‘s likely that they didn’t realise there was an NICs misalignment until the payments had been made over a number of years. However, both employers then submitted repayment claims for class 1 NICs for all employees with business mileage which they considered didn’t exceed the QA. HMRC refused the claims. Both employers then proceeded to appeal to the First- Tier Tribunal (FTT) – Wilmott Dixon were successful and had their appeal allowed, but Laing O’ Rourke weren’t. The Wilmott NICs refund claim was for £1.5 million and Laing O’ Rourke were claiming £2.25 million. Note that Wilmott Dixon made their claim following the successful 2012 Court of Appeal decision in Cheshire Employer and Skills Development Ltd (formerly Total People Ltd) v HMRC 6 . When HMRC appealed the Wilmott Dixon decision, and Laing O’Rourke appealed their decision, the UT decided to hear both cases together. They dismissed HMRC’s appeal and allowed Laing O’Rourke’s, having satisfied themselves that the car allowance payments were earnings and RME. This meant the QA could be deducted from the value of the allowances paid, which then triggered an entitlement to a refund of NICs paid in excess. HMRC had until 4 September 2023 to appeal the decision and didn’t. "Now is the time to speak to your clients to review any employment- related expenses which could be being claimed and ensure employee handbooks contain clear and unequivocal guidance"
Conclusion Discussions should be held with clients / fleet managers / human resource departments about this matter in case similar circumstances have occurred and NICs rightfully reclaimed.
to this tax relief claim. Mr. Kunjur was, after all, an employee.
UT decision The UT decided Mr. Kunjur had failed the test at Section 336 ITEPA 2003, stating in Paragraphs 33 and 34 of the decision: “33. We accept that the Premises were being used whilst Mr. Kunjur performed his duties, but expenditure on the Premises was not incurred in the performance of the duties. Rather, it was incidental expenditure which provided Mr. Kunjur with accommodation from which he could, amongst other things, take calls and carry out research. It put him in a position to do the work he was employed to perform, but he did not incur the expenditure in the performance of the duties of his employment. 34.We are therefore satisfied that the FTT erred in law in finding that the expenditure on the Premises was incurred by Mr. Kunjur 'in the performance of his duties'." Conclusion Now is the time to speak to your clients to review any employment-related expenses which could be being claimed and ensure employee handbooks contain clear and unequivocal guidance. There appears to be no sensible reason why this case even ended up in the tribunal. Mr. Kunjur made the claim because subjectively he believed he was incurring partial work-related expenditure, when in fact, it was his own personal choice that drove his decision to rent the apartment and live there. He could have stayed in student accommodation but chose not to, as he was a mature student. The act of putting himself in a position to carry out his duties didn’t mean he incurred the expenditure in the proper performance of his duties. It’s this distinction which employers and employees alike need to be clear about. n
Kunjur In HMRC v Jayanth Kunjur 7 , the UT
overturned the decision from the FTT when they confirmed the living accommodation expenses incurred by Mr. Kunjur didn’t qualify for tax relief under Section 336 of ITEPA 2003 8 , because they weren’t ‘wholly, exclusively and necessarily’ incurred in the proper performance of the employee’s duties. Background Mr. Kunjur trained as a junior doctor between 2012 and 2016 at St George's Hospital in Tooting. Formerly a dental surgeon with 17 years of experience, he had retrained as a maxillofacial surgeon. His job required him to be on-call for two nights a week and within 30 minutes of the hospital. He also needed to take phone calls during the night, which happened most nights. His home was in Southampton, and he rented living accommodation close to the hospital to ensure he could be on call. Mr. Kunjur claimed a proportion of the rental expenditure as a deduction from employment income in his tax returns. HMRC denied the deductions and issued assessments, closure notices and a penalty. On appeal to the FTT 9 , it was held that Mr. Kunjur had to meet the three elements of Section 336(1) ITEPA 2003 (known as the ‘wholly, exclusively and necessarily’ test). Unusually, the FTT also consulted the less rigorous test in Section 34 of the Income Tax (Trading and Other Income) Act 2005 10 , which deals with expenses for the self-employed and a ‘wholly and exclusively’ test. And on examination of the fact pattern, decided 11 that Mr. Kunjur should be granted a partial tax deduction because some of the work he carried out could be done from the apartment, such as research, taking calls and providing advice. HMRC appealed to the UT on the grounds the FTT had erred in law, leading it to arrive at a perverse conclusion – indeed, most employment tax experts would probably agree that the FTT did appear to have been distracted from applying the strict requirements set down in the Section 336 ITEPA test, which should have been applied
Links corner 1 https://ow.ly/kEAS50QrF1Z 2 https://ow.ly/RtTK50QrF7b 3 https://ow.ly/Zf5Q50QrFbB 4 https://ow.ly/YUGq50QrFcP 5 https://ow.ly/rnZv50QrFh8 6 https://ow.ly/ah7Y50QrFlj 7 https://ow.ly/nsWU50QrG9c 8 https://ow.ly/6v9850QrGhj 9 https://ow.ly/YoLs50QrGjn 10 https://ow.ly/m92u50QrGpp 11 https://ow.ly/QCO350QrGq5
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| Professional in Payroll, Pensions and Reward |
Issue 98 | March 2024
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