Company Cars & Partnerships

Yes - unless you are a salaried partner.

That sounds about right. A sole trader already owns the car, because he owns the business and it owns the car, so there is no question of him giving himself benefits in kind. The business does not have a different legal persona from its owner, as a company would have.

He would either treat the car entirely as his own, and account for business mileage at AMAP rates as business expenses [this is a clergy- given rather than god-given right, i.e. an IR concession not always available], or else account for all the running costs and capital writing-down allowances using an appropriate proportion of business to private mileage.

There is a £3k ceiling on the annual WDA, though I forget whether it's on the business part or the total [e.g. if he buys a £20k car and wants to write it down at 25%pa that would be £5k for year 1, which is not allowed, but if there's 50% private use, then only £2.5k would be claimed; not sure whether that's OK or the claim would have to be reduced to £1.5k, being 50% of the ceiling - no doubt Doug will enlighten].

A partnership is just a more complicated version of a sole tradership, so if "the partnership" owns the car, then it really belongs in some proportion to the partners individually. Obviously if only one of the partners uses the car privately, they will have to come to some equalisation arrangement, the most simple of which would be to have the private use element of the total annual cost (sum of actual running costs and agreed write-down of value) count as part of that partner's drawings.

What is the purpose of appointing an accountant to look after your taxation if you then query his expert advice?

Marcus

Because the next part of my question is..

He says I put my company car in the parterships name, and then the partnership invoices my Ltd company, and voila, my Ltd company is paying for my company car, and I'm avoiding paying the company car tax.

Now that sounds a bit dodgy to me.

If you use it then there's a benefit.

The 3k ceiling is irrespective of the amount of personal use. It is only a timing difference and will be resolved (normally) by a balancing allowance on disposal of the vehicle.

Sorry, that doesn't completely answer the question, because it fails to make clear that it is not the case that the ceiling applies to the business proportion of the WDA, but rather, as I see now from IR250, to the whole WDA.

Of course.

Mr Capone wants to write down £15k of the value of the Rolls Royce he bought for £60k. It gets 20% business use, so he wants to claim £3k, but unfortunately he can only write down £3k and claim a measly £600.

So instead he sells it to his accountant for £45k and claims a balancing allowance. Then he buys it back the next day for the same amount, and slips his accountant a little something for his trouble.

Unless the IR want to restrict the CAs even further for "personal choice". :)

How so? He already owns the car (together with his partner(s)). In other words it isn't really a company car at all. His Ltd Co is not providing any benefit, it is only paying for the services provided to it by the partnership, which happen to include use of the car.

Therefore it would appear to be analogous to a director making available *his own personal* car to his company for business use, and being suitably reimbursed.

It seems perfectly kosher to me, provided any amounts by which the payments from the company exceed AMAP rates (or actual costs as the case may be, especially if the "services provided" are exclusively or substantially transport services) are properly accounted for as taxable profit.

The company is paying for a company car which it provides to him.

Surely that is a benefit?

As I understand it the company is not providing the car at all.

No. The company is hiring a share of the partnership car. By being a partner, he already owns a share of the car personally. In no way is the company "providing" any of the car to him. On the contrary he, through his partnership, is providing (against payment) use of the car to his company.

Dramatis personae:

(1) John Allan himself. (2) John Allan & Partners, in which he has, say, a 60% stake. (3) John Allan Limited, of which he owns all the shares.

The car is in fact owned by (2). The partnership put up the money to buy it, and it pays all the running costs. How he managed to convince his partners to agree is outwith the scope of this discussion. But in effect (1) therefore already personally owns 60% of the car.

Now, (2) provides certain services to (3), which include the use of the car for (3)'s business purposes. For these services (3) pays (2) a generous but reasonable amount of money.

The car is also used to some extent for (2)'s non-(3)-related business activities, and, of course, it's also used for (1)'s private purposes.

Suppose the use of the car is split 50%-10%-40% for (1)-(2)-(3). Suppose all the car's running costs are paid for out of (2)'s funds. Suppose, including capital write-down, these costs in one year amount to £6k. Suppose (3) pays (2) £4k of this. This is £1600 more than its fair share, so (2) is making a bit of profit here. (1) ought to be paying (2) £3k for his private use, but 60% of the £1600 profit is his, so he could pay his share by drawing £2040 less than he otherwise would, though whether in fact he does this or not is irrelevant for tax purposes, so long as he pays tax/NI on his £960 share of the profits.

Show me where, in this scenario, (3) provides a BIK to (1).

Now what about if in fact (2) doesn't do anything other than be a vehicle (if you'll pardon the expression) for owning the car. Say J Allan & P Allan t/a Allan Cars. And (3) covers the cost of the car completely. Is this a perfectly legit way of avoiding company car tax ?

Or would it be best for (2) to make a little profit.

Not in that scenario but the OP didnt give that scenario and I think that any tax inspector would see it as a total farce.

By "covers the cost" do you mean hands over the full purchase price up front? That would look seriously dodgy, even if it's dressed up as a loan. Or do you mean pays the full running costs each year? That sounds rather better, but obviously in this case he would need to pay income tax on the profit his business makes - if (3) pays (2) the full £6k cost despite getting only 50% of the use, the other 50% being (1)'s, then there is £3k taxable profit.

Oh, and the purchase money still has to come from somewhere.

I doubt it's a big issue. What I don't see is the reason for involving a partner. Why can't Allan Cars just be wholly owned by (1)? Why can't the "Allan Cars" smokescreen not be dispensed with entirely, and have (1) own the car directly instead of via a dummy business?

The simplest way, obviously, for company car tax to be avoided, is for the company to provide cash instead of a car. You just need to do the sums to see whether cash tax or car tax is the more onerous. Depending on the amounts involved, this could involve very little tax actually being payable. If the company is cash-rich, it will already have paid any corporation tax due. (1) could get (3) to pay him the money as a dividend, attracting anywhere between 0% and 25% tax, depending on how much (1) earns and how much the car costs, and whether the money can be split across tax years.

A "director's loan", (3) lending money to (1), is a no-no if long-term, of course. That is the real problem, and I could see interposing a dummy business not wholly owned by (1) as making it look less like a director's loan. But it would look much better if (2) also provided cars to other customers, not just to (3).

The company is paying for a company car which it provides to him.

Surely that is a benefit?

Because if the partnership (2) buys a car on contract hire from, lets say, Peugeot, for 200 a month, it can bill (3) 200 a month, and the partnership makes 0 each year, and the Ltd company has really paid for the car, but you've not paid income tax nor company car tax on the cost of the car. There is no up front cost with contract hire, apart from a few months payments.

The car is available for the directors of (3) to use during business hours, and available for (2) to use privately.

I'm a salaried partner and certainly pay car tax!!!

regards

john

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