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Clause 23 - Taxable benefits: cars, vans and related benefits

Finance (No. 2) Bill – in a Public Bill Committee at 4:30 pm on 1st May 2014.

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Question proposed, That the clause stand part of the Bill.

Photo of Cathy Jamieson Cathy Jamieson Shadow Minister (Treasury)

Clause 23 relates to clause 25, which we will come to slightly later in our consideration of the Bill. Clause 23 removes section 114(3) of the Income Tax (Earnings and Pensions) Act 2003, which allows employees to claim company cars as employment earnings rather than as a benefit in kind. Clause 23 thereby  ensures that the benefit of company cars and vans is taxed in full from 6 April 2014. My understanding is that the measure has been introduced because the Government take the view that the former situation might inadvertently lead, in some cases, to individuals paying less tax on their car or van benefit by claiming the benefit as earnings, which the Government did not originally intend. The explanatory notes that accompany the 2003 Act make it clear that section 114(3) was inserted to prevent a double-taxation charge from arising on car, car fuel or van benefits. Indeed, the information impact note accompanying the clause supports the view that it sought to provide protection from double taxation. However, the explanatory notes to the clause explain further the Government’s thinking with some concern about the way the situation operates currently because individuals could pay less on the car or van benefit than the Government intended. That would have a negative impact on Exchequer revenue.

It seems to me when looking at some of the points that have been raised in the past that—perhaps the Minister will confirm this—cases in the courts have brought that to the fore. HMRC v. Apollo Fuels Ltd and others involved the employer leasing cars to some of its employees, but the rent paid by the employees was the same under that arrangement as if they had entered into a lease agreement themselves. I cannot quote all the facts, but it seems that there was a financial gain to the employees. Such cases have brought the matter to the fore.

Will the Minister confirm whether there are similar cases or other issues that she wishes to highlight to us in relation to HMRC and cases that have been taken to tribunals? Can she estimate how much revenue has been lost as a result of any such actions arising from the way the legislation operates, and has there been an estimate of the number of individuals who have engaged in such activity and claimed for their car or caravan benefits as constituting earnings under the provisions and therefore paying less tax?

We do not oppose the clause standing part of the Bill, but it would be useful if the Minister responded to those points.

Photo of Nicky Morgan Nicky Morgan Minister for Women, The Financial Secretary to the Treasury

I am providing some variety as we head towards the end of our sitting. It is a pleasure, Mr Caton, to serve under your chairmanship on my first Finance Bill. I thank the hon. Member for Kilmarnock and Loudoun for her comments and I hope that we can speed through the clause. I understand that the Opposition broadly support it, but she has highlighted some questions.

Clause 23 makes changes to the Income Tax (Earnings and Pensions) Act 2003 to protect tax revenue by ensuring that a company car and van benefit is taxed in full. Section 114(3) of that Act is intended to prevent an employee from being charged twice in respect of the same company car benefit—once under the car benefit rules and once under the money’s worth rules. That applies to a car or van benefit, but for simplicity I will speak only about cars.

The Government’s policy intention is to tax the full amount of the car benefit. However, that is not what the provision achieves in some cases. It inadvertently gives  priority to the money’s worth charge and then entirely disapplies the car benefit rules. The end result is that the amount of tax an employee pays is likely to be significantly less than the amount due using the car benefit rules. That could have a negative impact on Exchequer revenue and the integrity of the car benefit rules.

The change being made by the clause will repeal section 114(3) of 2003 Act. It will apply to all employees who have a company car or van. Most individuals will not see any change as their company car is already taxed under the car benefit rules. However, the clause ensures that the full amount of car benefit is taxed. There will also be no change to the way a car benefit is calculated or to the existing reporting requirements to HMRC.

The hon. Lady asked several questions and I will answer them briefly. She asked about HMRC v. Apollo Fuels Ltd and others. She was correct in saying that that first tier tribunal case alerted us to the possibility of the car and van benefit rules being disapplied, and we are making the changes to prevent any tax loss.

The hon. Lady asked whether there had been any tax lost to date. HMRC is not aware of any tax loss as a result of individuals using the provision to prevent a double tax charge to pay less tax on a company car. However, she will appreciate that the clause will ensure that Exchequer revenue is now protected and that the full amount of car or van benefit is subject to tax.

The hon. Lady also asked whether any tax avoidance schemes had been created in this respect. HMRC has not seen any such schemes created, but the clause ensures that individuals cannot use the provision preventing a double-tax charge to pay less tax on a car or van benefit.

The clause aligns the legislation with the policy intention to tax the full amount of a car benefit. Most people will not see any change, but the clause will protect Exchequer revenue by ensuring that the correct amount of tax is payable on a car benefit.

Question put and agreed to.

Clause 23 accordingly ordered to stand part of the Bill.