HMRC Win Benefits in Kind Fight With LLP

A recent tax decision could spell trouble for limited liability partnerships (LLPs).

It involved an LLP which purchased and provided cars and fuel for the use of partners in the LLP. The partners were either directors in a company to which the LLP provided management services or family members of its directors. The LLP partners took little part in the running of the company and the company was the only customer of the LLP, which recouped all of its running costs by levying management charges on the company.

HM Revenue and Customs (HMRC) took 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. HMRC argued that the terms of business between the LLP and the company were not those one would expect between organisations dealing with one another ‘at arm’s length’ and that the provision of the cars within the LLP was not necessary to its business. Both of these factors, 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 accepted HMRC’s argument. It remains to be seen whether the decision will be appealed, but those with similar arrangements should consider whether they are likely to be caught out if HMRC were to investigate their arrangements and what steps might be taken to prevent a successful challenge.