Taxman is getting tougher on benefits in kind
Some serious consideration should be taken by individuals running parallel company and partnership structures (including LLPs) in light of the judgement by the First-Tier Tribunal in the recent case of Cooper & Ors V HM Revenue & Customs, writes MacIntyre Hudson, a chartered advisor to business owners.
In the case, cars (and car fuel) were made available by a partnership to its partners. The partners were also directors of company (or the family members of such directors) to which the partnership provided administrative services.
The Tribunal decided that, despite being provided by the partnership, the cars (and fuel) were made available by reason of the employment of the directors by the company. As a result, they were taxable as benefits in kind (BIK) and also subject to Class 1A National Insurance Contributions.
The partnership in question carried on the business of providing the services of its personnel and administrative services to the company in return for fee income. It had a number of employees who between them carried on the business, but the partners themselves had a minimal role in carrying on that business.
The Tribunal concluded that the partnership’s business did not require that its partners were provided with the use of cars. Although the capital and any finance costs relating to the acquisition of the cars and provision of fuel were met by the partnership, all those costs were recouped from the company by means of the management charges, and so were ultimately borne by the company.
In addition, the terms of business between the partnership and the company did not reflect those of independent parties acting at arm's length.
The Tribunal also considered that the partnership would not have existed, commercially, but for the company, its only customer. The benefit of the cars and the car fuel was provided by the partnership would not have been so provided were the partners not directors (or their family members) of the company.
While this decision is only a First Tier Tribunal case, it is likely that the ruling will be used by HMRC going forward. Consideration should, therefore, be given to the rationale and commerciality of existing (and proposed) parallel partnership and company structures, particularly where cars are provided by the partnership to the partners, as HMRC is likely to start taking a greater interest going forward.
It is likely that those who have historically entered into such arrangements may be made the subject of review and HMRC, and may look for settlement of earlier year liabilities together with interest and penalties, where its challenge is successful. We are not aware, to date, whether the taxpayer will appeal.
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