Trade in LTD Co, Cars in LLP

I've heard about this for sometime: putting a business trade in a LTD company, but cars through an LLP to avoid the BIK, the LLP then charges the annual statutory mileage rate and a small management charge. I then heard a well-known tax speaker at anICAEW conference mention that it was ok.

It is possible to really do that, specifically if there is no trade in the LLP, other than car mileage and a small management charge to the Company? Perhaps a "manufactured" trade in the LLP is required, by putting some trade through the LLP that would otherwise have been through the LTD company.

What are others thoughts on this? Is there any HMRC legislation on this (I couldn't find any).

Your help would be much appreciated!!

Comments
naomi2000's picture

LLP and company    1 thanks

naomi2000 | | Permalink

The legislation is there -you're looking for s117 in ITEPA 2003 and the new FA no3 2011 disguised remuneration rules.

The short answer is that it can work if properly structured but if the scheme is properly structured then the benefits may be rather more modest than you might think .

I would have a look at the HMRC manual guidance at EIM31500 which goes through the issues in detail .

 

 

Thanks for that

NewACA | | Permalink

I'll take a look later today.

 

 

Employee Car Ownership Schemes

NewACA | | Permalink

Thanks Naomi for the link to the ECOS (Employee Car Ownership Schemes) guildance at EIM31500. I've also looked at the other items too you suggest.

Pardon my ignorance, but I am not understanding the relevance of the EIM31500. Are you saying that the LLP is to be the ECOS provider? If so, isn't this in contravention of the legal requirement for an LLP to be profit making? Wouldn't this be called into question if the customers of the LLP (the employees of the LTD trading company who use the cars) are also the partners of the LLP - therefore no real profit? Having readup a little about ECOSs, it is the employee who owns the car, but pays a monthly fee to the ECOS, which is lower than the BIK they would otherwise pay.

I guess I must have the wrong end of the stick some how. Where have I got wrong? 

My initial thoughts before posting anything a week ago does not involve ECOSs. My thoughts were that the LLP buys and owns the cars and incurs all vehicle expenses. It then charges say, £1 per mile to the company (the real mileage cost of the car, including its original purchase). The directors of the LTD company (the car users) are the partners in the LLP, so legally it is them that own the car, so no BIK. The partnership overtime should break-even with the right mileage allowance (say £1/mile), so no personal taxes to pay by partners of  the LLP. 

Am I "talking" complete rubbish? Is the excess of the 55p above the 45p taxable as it would be if paid direct to the employee as it is above the Statutory Mileage Allowance Rate?

Any help much appreciated!

naomi2000's picture

Car schemes

naomi2000 | | Permalink

Sadly there is no law that can ensure that an LLP makes a profit.  Are you thinking of the requirement for a "small p" partnership to be carried on with a view to a profit ? Generally , I would expect the vehicle for an ECOS to make a small blink and you'll miss it type profit if run prudently because even with the most boring venture there should be some allowance for irregular and one off expenses.

But going back to your original query, there are a lot of theoretical planning ideas that get mentioned on the lecture circuit ,but turning them into practical action can be a challenging exercise for the brain. If I read you right, you want to work this out for yourself, rather than getting  the solution on a plate. So here are some quick pointers before I go back to reviewing.

The original version of this idea would have dated from a time before the disguised remuneration rules were in place so you need to do a bit of a mash up . 

I don't think you can look through the LLP in quite the way you think -each LLP member would own a fractional share of all the LLP assets, not a 100 % share in a particular one of them.

You might want to think about where the money is going to come from for the cars and the mechanics of how the finance for the cars is going to be raised -which is an issue that the ECOS guidance addresses  (albeit in very general terms because it's trying to address a wide variety of situations) and how this interacts with the loan bits of the disguised remuneration rules . I understand that Tolley's Practical Tax has recently done a long and clear article about this if I'm allowed to mention rival publications. If not, apologies to the mods.

Effectively, the only subsidies for the employee are going to be FPCS mileage ,any group discount that the ECOS can negotiate -perhaps by agreeing a tie with a particular brand -and a de minimis contribution to admin charges (likely to be far less than 10p a mile) . It's not a magic bullet which is why I said that if it's structured properly that the benefits are smaller than might appear to be the case - effectively the employee is benefitting from mass discount power not tax wizardry .Mass discount power is better than nothing though .

From the employer's point of view, it's an attempt to keep the balance sheet uncluttered,free up working capital and step back from the sheer joy of fleet management .

 

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