In the case of Sarah Baylis [2016] UKFTT 725 (TC), the First Tier Tribunal (FTT) was asked to decide which employee in a family business should be taxed as a benefit in kind for a relative's care fees.

Ms Baylis had been an employee of her father's company, VWML for many years. In 2009, when her mother fell ill, Ms Baylis contracted with a care home to look after her. The care home’s fees were then paid for by VWML over a two year period.

HMRC later assessed Ms Baylis for tax on VWML's payment of the care fees. HMRC's primary argument that Ms Baylis had personally contracted with the care home so that by paying her mother's care fees, VWML was meeting her personal liability. The payment was a benefit to Ms Baylis specifically and she should be taxed accordingly as a benefit in kind.

Ms Baylis appealed against HMRC's assessment on the basis that she had contracted with the care home as an agent of the company, rather than in her personal capacity. Whilst she accepted that the payments were a benefit in kind, she argued that the care home fees were not a personal liability. Her father, as another employee of the company, should be taxed for the benefit instead.

HMRC's secondary argument was that, if Ms Baylis had contracted as agent, the employer still had discretion over which of its employees should be charged for the benefit. Ms Baylis was therefore liable nonetheless, as VWML was aware of the circumstances around both of its employees and had decided the she should bear the tax.

Dismissing HMRC's first argument, the FTT found on the facts that Ms Baylis had been acting as an agent for VWML. The payments should therefore be treated as a benefit provided for an employee's family member, which included both Ms Baylis and her father.

Turning to the question of who was liable, the FTT disagreed with HMRC's assertion that employers could decide who should suffer tax. Quoting Lord Wilberforce, Judge Anne Redston held that "taxes are imposed upon subjects by Parliament", not employers. Instead, the relevant legislation should be read as listing categories of employee in order of their liability. Since "spouse" came before "parent" in the legislation, Ms Baylis' father was liable to tax before Ms Baylis.

The FTT therefore held that Ms Baylis was not liable for tax on the payments and that her appeal should be allowed.

This case gives more clarity to the rules on taxing employees for benefits provided by employers. In particular, the FTT has given a clear rejection of the idea that employers have any ability to choose which of their employees are charged to tax. The case also serves as an important reminder for employers on the rules of agency and whether their employees have authority to contract on their behalf.