Tax Planning – can it go a step too far?

A recent case demonstrates the dangers of taking tax planning a bit too far. If you have a similar arrangement and would like to talk through the implications of this decision please do contact us.

The background

The case involved four family members in a partnership, which provided administrative services to a company, of which two of the partners were directors. The partnership provided cars and fuel to the partners and the cars were available for non-business use. The fees charged by the partnership to the company covered the costs of the partnership, which included the costs of providing the cars and car fuel benefits.

The issue

HMRC argued that the car and fuel provided by the partnership were made available to the partners by reason of their position as directors, or family members of directors, of the company. They argued that all the costs of providing the cars and fuel were met by the company through the management charges paid to the partnership.

If the company was not doing business with the partnership, the partnership would not have funds to provide the cars and meet the fuel and other running costs. HMRC asserted that the partnership was little more than an extension of the company, established to reduce income tax on the cars.

The conclusion

The Tribunal agreed with HMRC. The partnership was wholly dependent on the company and, despite the fact that the partners had provided capital for the purchase of the cars, the cost of the cars was borne by the company.

The answer may well have been different if the partnership was carrying on a real trade in its own right. Please do contact us on 01626 208802 or email enquiries@peplows.co.uk if you would like to discuss your own situation.