Where the partnership employs others on PAYE and pays them a benefit in kind (use of a car, private health insurance etc) then no one would argue that the usual PAYE rules dictate that benefits have to be declared annually on forms P11d. But what about where the only ‘workers’ in the partnership are the partners themselves?
In a potentially wide ranging decision, a First-tier Tribunal has ruled on exactly this issue, in favour of HMRC.
The case involved an LLP partnership that was formed to provide management services to a company. The following details are of interest:
As part of the arrangement the LLP owned and provided the use of cars to the partners. This included private fuel.
The partners were also directors of the company, or were family members of the directors.
The partners had a minimal role in the running of the LLP.
The LLP only had one customer, the limited company.
This is by no means a unique arrangement, especially where the taxing issue of company cars is concerned, so the Tribunal’s ruling should be considered very carefully.
The Tribunal considered and reached the following decisions:
1. That the LLP’s business would have survived without the provision of cars to the partners.
2. That all of the car running and acquisition costs were recouped from the company as part of a management charge.
3. That the terms of business between the LLP and the company did not reflect those of independent parties acting at arm’s length.
The Tribunal decided that, despite the LLP being a separate legal entity, in effect the use of the cars by the partners of the LLP was made available due to their employment as directors of the company. Accordingly, the directors should be taxed on the use of the cars as a benefit in kind, and the company was also liable to pay Class 1A NICs despite the fact that the company did not actually provide the cars itself.
It would seem that there is an effective element of double taxation on the private element of motoring costs – but, in the words of the Tribunal, the taxpayers have “to live with the consequences of that”.
It is not clear at this point if the case will be appealed so at present HMRC have an opportunity to challenge similar arrangements.
Whilst this case is a worry in some situations partnerships that are genuinely “standalone” will not be affected.
If you are in any doubt about the potential taxation implications of arrangements your business has with 3rd parties, please contact your local Burgis & Bullock office on 0845 177 5500.