LLP and car tax
Discussion
Hi all,
A question for those of you with some tax expertise.
I have always run my cars privately. My business is set up as an LLP and I had always understood that this was not especially tax beneficial should I wish the LLP to purchase my (thirsty and big engined!) car.
However, I was told at the weekend that there is a distinction between an LLP owning a car and a limited company doing so. Unhelpfully I was given no more information.
Can anyone shed any light on this? If I can make my motoring more affordable, that would certainly be a bonus!
Much appreciated.
A question for those of you with some tax expertise.
I have always run my cars privately. My business is set up as an LLP and I had always understood that this was not especially tax beneficial should I wish the LLP to purchase my (thirsty and big engined!) car.
However, I was told at the weekend that there is a distinction between an LLP owning a car and a limited company doing so. Unhelpfully I was given no more information.
Can anyone shed any light on this? If I can make my motoring more affordable, that would certainly be a bonus!
Much appreciated.
LLPs are just another form of partnership. Partnership taxation is much closer to sole trader taxation rather than limited company taxation.
As you are a partner in a partnership - and not a director of a limited comkpany (or an employee), the PAYE Benefit in Kind rules do not apply to you.
If the partnership buys a car, the partnership can claim the relevant allowances and running costs associated with that car as tax deductable expenses. The restriction is that those costs and allowances will be reduced to take into account the non-business element of those costs. This is usually done by comparing private versus business mileage.
So company car and benefit in kind rules do not come into play.
As you are a partner in a partnership - and not a director of a limited comkpany (or an employee), the PAYE Benefit in Kind rules do not apply to you.
If the partnership buys a car, the partnership can claim the relevant allowances and running costs associated with that car as tax deductable expenses. The restriction is that those costs and allowances will be reduced to take into account the non-business element of those costs. This is usually done by comparing private versus business mileage.
So company car and benefit in kind rules do not come into play.
CarbonBlackM5 said:
We used to be a LLP and the company funded our cars totally (tax, insurance, servicing fuel etc etc).
They were owned by us and not the company. It was a big shock when we went to a limited company
With an LLP (or ordinary partnership or a sole-trader) HMRC tax the relevant individuals (parthe4rs, proprietor) on the private use of their cars by the Private Useage adjustment when computing the taxable profis of the business.They were owned by us and not the company. It was a big shock when we went to a limited company
Although you genuinely operate as an LLP, 4 or 5 years ago there was a trend of directors of ltd co's setting up LLp's as consultancies and very expensive cars being held in them, the LLP charging the ltd co a monthly charge. HMRC whilst not happy were not overly inclined to test the commercialiy of these arrangements and preferred to point out that they didn't like these arrangements and would prefer to see them stopped. It was nice and cost effective while it lasted
Apologies for the thread resurrection - just wondered, can anyone comment on whether the rules for (legitimate) partnerships have changed in the past couple of years and/or whether they're likely to change in the foreseeable future?
Also, when calculating the private use element, is there a generally accepted (by HMRC) percentage that can be used to avoid the need for detailed record keeping?
And, lastly, how (if at all) are LLPs required to deal with BIK on fuel for private use?
Thanks in advance.
Also, when calculating the private use element, is there a generally accepted (by HMRC) percentage that can be used to avoid the need for detailed record keeping?
And, lastly, how (if at all) are LLPs required to deal with BIK on fuel for private use?
Thanks in advance.
BIKs will only apply to partners and staff who are paid salaries through the PAYE system (what used to be referred to as Schedule E earnings).
"Normal" partners are taxed on their share of partnership profits (under what used to be called Schedule D earnings).
There is no "global" private use ratio. It needs to be calculated reasonably accurately based on business V' private mileage - so mileage records should be kept for all partners who are using a car owned by the partnership.
An alternative would be for the partners to keep their cars personally and claim 45p/25p mileage rates from the partnership. That would definitely simplify records - although business miles would still need to be recorded to support the mileage claims.
You also need to take into account the fairly poor Capital Allowances available on business owned motor cars before deciding whether it is worthwhile the partnership actually acquiring motor cars.
"Normal" partners are taxed on their share of partnership profits (under what used to be called Schedule D earnings).
There is no "global" private use ratio. It needs to be calculated reasonably accurately based on business V' private mileage - so mileage records should be kept for all partners who are using a car owned by the partnership.
An alternative would be for the partners to keep their cars personally and claim 45p/25p mileage rates from the partnership. That would definitely simplify records - although business miles would still need to be recorded to support the mileage claims.
You also need to take into account the fairly poor Capital Allowances available on business owned motor cars before deciding whether it is worthwhile the partnership actually acquiring motor cars.
Bumping this from the past!
I'm trying to understand the use of an Llp to provide cars to the partners.
I currently have a ltd co which provides consultancy services. I am the director and both proposed partners are employees.
If I set both employees up in the Llp to cover the running of my ltd co, then from what I read, it is (was?) the case that I can provide a car to each partner without any bik charges being applicable?
I'm trying to understand the use of an Llp to provide cars to the partners.
I currently have a ltd co which provides consultancy services. I am the director and both proposed partners are employees.
If I set both employees up in the Llp to cover the running of my ltd co, then from what I read, it is (was?) the case that I can provide a car to each partner without any bik charges being applicable?
You need to be very careful in setting up such an artificial structure purely to provide these individuals with company cars. HMRC are very aware that partnerships have been set up in the past to try and facilitate these types of "perks" and they will not allow it if they find out what is going on.
Also, how can these two people suddenly jump from being employed by an entity to suddenly be partners in a different entity which is essentially providing the same services to the organisation they used to be employed by. What trading activity will the new partnership carry out and who will its customers be?
IR35 can raise its ugly head in these circumstances. IR35 is not just confined to "personal service companies".
Also, how can these two people suddenly jump from being employed by an entity to suddenly be partners in a different entity which is essentially providing the same services to the organisation they used to be employed by. What trading activity will the new partnership carry out and who will its customers be?
IR35 can raise its ugly head in these circumstances. IR35 is not just confined to "personal service companies".
There was a tribunal case a few years ago (not 100% sure when). The directors of a company set up a LLP, which provided them with cars.
HMRC argued that the directors should be taxed on the cars as benefits in kind and they won. The directors were worse off as they were double taxed to an extent as the LLP still suffered a private use adjustment. The tribunal essentially said that was tough luck as they chose to structure their affairs that way.
I forget the exact details of the case but as Eric said above, the structure would be very artificial and I don't you'd have much of an argument that the main purpose of the arrangement wasn't to avoid tax.
HMRC argued that the directors should be taxed on the cars as benefits in kind and they won. The directors were worse off as they were double taxed to an extent as the LLP still suffered a private use adjustment. The tribunal essentially said that was tough luck as they chose to structure their affairs that way.
I forget the exact details of the case but as Eric said above, the structure would be very artificial and I don't you'd have much of an argument that the main purpose of the arrangement wasn't to avoid tax.
Gassing Station | Business | Top of Page | What's New | My Stuff