The First-Tier Tax Tribunal has ruled that the use of yachts, jewellery and clocks ‘placed at the disposal’ of an employee gives rise to a benefit in kind.
In the case, Gillian Rockall v HM Revenue and Customs (HMRC), Rockall and her husband were the directors and controlling shareholders of two organisations, WHL and ML, both of which owned and ran conference centres and hotels hosting management training courses.
They claimed the cost of the items against tax between 2000 and 2009 on the basis that they were used wholly and exclusively for business purposes.
HMRC did not agree and issued assessments asserting that the Rockalls’ personal use of the assets made them benefits in kind, and that tax relief was not available on these benefits.
The Rockalls appealed to the First-Tier Tax Tribunal on the grounds that the use of the assets was tax deductible.
The tribunal ruled that the yacht was bought and operated purely for business purposes and thus was fully tax deductible.
However, the expenditure on jewellery and clocks was not ‘necessarily’ incurred in the performance of the duties of employment, but rather to enable those duties to be better performed, which meant there was no entitlement to a tax deduction for these items.
Tina Riches, national tax partner at Smith and Williamson, said: “Yachts, jewellery and clocks used for company business were ‘placed at the disposal’ of employees. ‘Placed at the disposal’ meant something more than ’made available’ (i.e. it had to be under the power and control of the employee).
“However, [the Income Tax (Earnings and Pensions Act 2003 section 205(a)] does not require there to be actual use of a benefit to arise. Thus, despite the assets being used by the employees for company business, a benefit in kind arose.
“With regard to any expenses that could be deducted from the benefit, the yacht hire charge would have qualified for relief because the expense was wholly, exclusively and necessarily incurred in the performance of the duties on the employment.
“Expenditure on jewellery and clocks merely put the employee ’in a better position to perform their duties’. These expenses would not have been incurred as an obligation of the taxpayers’ employment.”
