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February 28, 2017

S Baylis v HMRC - Who is liable to benefit in kind charge?

In the case of S Baylis v HM Revenue & Customs, the First-Tier Tribunal considered whether the payment of an individual's nursing home fees should have been included in the P11Ds of her husband or her daughter, both of whom worked for the same company.

In arriving at the decision, the Court had to determine whether the daughter had personally contracted with the care home resulting in a benefit in kind (BiK) taxable on her, or whether she contracted with the care home as an agent for the company controlled by her father.


  • Sarah Baylis was employed by Val Wyatt Marine Ltd (VWM) in the role of financial director.
  • Her father, Alec Baylis, was VWM's majority shareholder and managing director.
  • Several years prior to the assessment, Alec Baylis had an extra-marital affair and started a new family, but did not obtain a divorce or legal separation from his wife, Judith Baylis, and they maintained a joint bank account and retained a close relationship.
  • Judith suffered from a number of physical and mental health conditions, and it was recommended that she was moved from a clinic into care. Sarah signed a contract with the nursing home, and VWM paid the care fees.
  • The P11Ds were submitted on the basis that the care home fees were a BiK attached to Alec.
  • Alec informed Sarah that her position as financial director would be given to another employee, Mrs Caddick, who had recently begun working for the company. As a result of this, Alec and Sarah's relationship broke down.
  • Board minutes, signed by Mrs Caddick, were filed stating that the classification of the nursing home costs paid by the company were to be changed from a BiK to Alec to a BiK to Sarah. A disclosure report was sent to HMRC informing them of the amendment.
  • HM Revenue & Customs assessed Sarah to tax on the basis that the BiK had been omitted from her tax returns.

The Case

In order for Sarah Baylis to sign the contract on behalf of VWM, and for the company to be bound by her actions, there must have been an agency relationship. When determining whether she signed the contract as agent or in her personal capacity, the following questions were considered:

  1. Did Alec authorise VWM to pay the care home fees?
  2. Did Alec authorise Sarah to act as agent for VWM when signing the contract?
  3. Was Sarah acting in that capacity when she signed the contract?

After some deliberation, the Court accepted that an agency relationship was place. This was because Alec was in control of the business during the relevant period and he was clearly aware that these payments were being made by the company.

Who was liable?

It was therefore accepted that VWM had contracted to pay Judith's fees, and so the amounts paid were a benefit for a member of the employee's family. As Judith was a member of both Alec's and Sarah's family, the question was who bears liability?

Sarah argued that the legislation at ITEPA 2003 S721 sets out a hierarchical approach to direct the employer as to who should bear the tax charge. In that hierarchy, “the person’s spouse” comes before “the person’s parents”, therefore Alec was liable to tax on the BiK.

HMRC disagreed, and argued that it was for the employer to decide who should bear the tax as the employer knew the background facts about both employees.

The Courts were unable to identify any rules giving the employer discretion as to who should be taxed on a benefit in kind. It was stressed that “taxes are imposed upon subjects by Parliament”, and not by employers.

The Courts therefore agreed that the hierarchy provided in the legislation was correct and Sarah was not liable to a BiK charge on the fees.

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