Benefits in Kind and the use of LLPs

A recent tax decision could spell trouble for limited liability partnerships.
In the case the First Tier Tribunal was asked to decide
(1) Whether the provision of motor cars leased and owned by the LLP and car fuel to its partners was taxable as a benefit in kind on the Directors of the main business (‘Company’) by reason of their employment as directors of the Company; and
(2) Whether the provision of motor cars leased and owned by the LLP and car fuel to the members of the LLP is chargeable as a benefit in kind by reason of their employment as directors of the Company and therefore is subject to Class 1A National Insurance Contributions.
HMRC had taken the view that the Directors of the Company had the use of their cars because of their employment as directors of the company, not because they were members of the LLP. It argued that the relationship between the LLP and the company were not ‘at arm’s length’ and that the provision of the cars within the LLP was not necessary to its business, indeed it was unclear what that business was. Both of these factors, the HMRC argued, supported its view that the arrangement was artificial and the provision of the cars and car fuel to the directors was subject to Class 1A National Insurance liabilities.
The First-tier Tribunal commented as follows:
(1) The provision of motor cars leased and owned by the LLP and of car fuel to its members is taxable as a benefit in kind on the Directors of the Company by reason of that person’s employment as a director of the Company;
(2) Such provision of motor cars leased and owned by the LLP and of car fuel to its members is chargeable as a benefit in kind and therefore is subject to Class 1A National Insurance Contributions.
Brendan O’Brien Corporate lawyer and Managing Director of Breeze & Wyles Solicitors LLP said: “If this case is not challenged or appealed then directors and owners of companies need to be extremely careful how they deal with ownership of cars and the locking away of benefit in kind. Failure to deal with these issues properly could have disastrous implications with the HMRC able to recover unexpected tax liability from directors personally.”

 

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