DJ Cooper v HMRC: Car trouble for company directors

 

A recent tribunal confirming HMRC’s increasingly hard line on directors who benefit from company assets could put a brake on company cars provided by partnerships, warns Lesley Stalker.

The tendency for celebrities and highly paid executives to become self-employed “consultants” to avoid high taxes is becoming less fashionable for a number of reasons including IR35 controlling persons rules and controversies around the practice within public bodies including the BBC.

But it is still theoretically possible to work for a limited company and be provided with a car by a partnership of which you are a partner to take advantage of less onerous tax treatments for private use of benefits in kind.

But a recent tax tribunal case highlighted the growing risks of this strategy. The appellants in DJ Cooper and partners v HMRC [2012] UKFTT 439 (TC) were faced with a retrospective tax bill of £200,000 after HMRC penalised them for what it regarded as a deliberate attempt to avoid paying taxes on company vehicles, which they believed were predominantly a private perk.

The case really hinged on the commerciality of the situation: HMRC argued that the cars were only provided by the partnership by reason of employment with the limited company and the tribunal judges agreed.

Since HMRC is on the lookout to boost its tax take, it is seeking to pushing back the boundaries between tax planning and tax avoidance. Any tax planning strategies you undertake should be very well thought through and need to be predominantly commercially driven to avoid situations such as this.

This article is based on a blog by Lesley Stalker of the Robert James Partnership. If you have concerns or questions relating to potentially taxable benefits you might be receiving, either as a partner or company director, She is available via email at las[AT]rjp.co.uk

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John Stokdyk's picture

Similar warning from tax podcaster Anne Fairpo

John Stokdyk | | Permalink

AccountingWEB's tax podcaster Anne Fairpo came to a very similar conclusion in her 30 July edition

She commented that the partnership had four partners, two of whom were company directors and the other two were family members of one director. The partnership’s only activity was provision of administrative services to the company and its fees included the costs of the cars and fuel.

The tribunal held the cars and fuel were provided as a benefit of employment. There didn’t seem to be another realistic view and the terms of business were found not to be on an arm’s length basis.

The partnership may have been an attempt to try and provide cars etc outside the company, but it did backfire somewhat.

“As we’ve seen in other cases such as Hoardwheel very close connections between companies and partnerships are really causing issues. You might need to rethink why you are providing for a partnership to be involved in a company.”

There could be good reasons for such a structure, she added, but in these cases, you need to watch where there’s much more limited company, for example involving the family, and find out what’s really going on.

It will always be a game of catch-up

kudlit | | Permalink

While HMRC will always look for ways to increase its tax collection, tax professionals will always find way to minimize tax being paid. It's simply a game of catch-up.

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