In a potentially wide ranging decision, a First-tier Tribunal has ruled 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.
The Tribunal considered and reached the following decisions:
That the LLP’s business would have survived without the provision of cars to the partners.
That all of the car running and acquisition costs were recouped from the company as part of a management charge.
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 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 – the company was also liable to pay Class 1A NICs.
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 by the defendant. As things presently stand the case does offer HMRC an opportunity to challenge similar arrangements. The general circumstances of this case are quite specific, though by no means rare, but partnerships that are genuinely “standalone” will not be affected.