Running a car through an LLP / Tax free?
Discussion
Quick question to those more in the know.
I was out today with a friend who runs a Ltd company and also is a partner in an LLP.
He bought a new car through the LLP and runs the car completely through this. He doesn't pay any co car tax at all as apprently the rules are different with an LLP and there's a loophole that allows the car to be run with no tax payments at all. He couldn't go into a lot more detail as the partner he runs it with is the expert on this having working at the inland revenue for some considerable time before doing this.
Does anyone else know the ins and outs of this at all? Setting up the LLP is pretty easy for me as I run a ltd company with some very loyal customers so no issues running invoices through it form plenty of sources etc.
I was out today with a friend who runs a Ltd company and also is a partner in an LLP.
He bought a new car through the LLP and runs the car completely through this. He doesn't pay any co car tax at all as apprently the rules are different with an LLP and there's a loophole that allows the car to be run with no tax payments at all. He couldn't go into a lot more detail as the partner he runs it with is the expert on this having working at the inland revenue for some considerable time before doing this.
Does anyone else know the ins and outs of this at all? Setting up the LLP is pretty easy for me as I run a ltd company with some very loyal customers so no issues running invoices through it form plenty of sources etc.
LLPs are partnerships and therefore the partners in the partnership will not be taxed on private useage of partnership owned cars under the Benefit in Kind rules.
BIKs only apply to employees of the partnership or employees and directors of the limited company.
If the partnership owns the cars, then the cars can be used by the partners without any BIKs arising. The partnership will claim the capital allowances on the car and offset the running costs of the cars as business expenses.
However, the tax man does have a system whereby he expects partners to ensure that they only claim the BUSINESS element of the running costs and capital allowance claims as tax deductable coasts agianst the partnership profits. In this way, the partners are expected to pay personal tax and NI on the profits of the partnership after those profits have been bumped back up to take into account the non-business use of the cars.
Now, the trick in the situation you describe might be that the partners ensure that there are no profits left in the partnership anyway and that the profits are effctively transferred into the limited company by the limited company charging the partnership appropriate "management charges" to clear the partnership profits.
The Revenue are not stupid however. If this is indeed how these profits are being manipulated, they have the power to amend or even disregard the management charges to get back to the true profit position of the partnership.
BIKs only apply to employees of the partnership or employees and directors of the limited company.
If the partnership owns the cars, then the cars can be used by the partners without any BIKs arising. The partnership will claim the capital allowances on the car and offset the running costs of the cars as business expenses.
However, the tax man does have a system whereby he expects partners to ensure that they only claim the BUSINESS element of the running costs and capital allowance claims as tax deductable coasts agianst the partnership profits. In this way, the partners are expected to pay personal tax and NI on the profits of the partnership after those profits have been bumped back up to take into account the non-business use of the cars.
Now, the trick in the situation you describe might be that the partners ensure that there are no profits left in the partnership anyway and that the profits are effctively transferred into the limited company by the limited company charging the partnership appropriate "management charges" to clear the partnership profits.
The Revenue are not stupid however. If this is indeed how these profits are being manipulated, they have the power to amend or even disregard the management charges to get back to the true profit position of the partnership.
Thanks Eric, that makes perfect sense. I gather by that then that it's feasible but potentially risky in terms of the profits situation. What I am trying to work out is if it's more tax effective to do it this way than run through the business. Unfortunatley I can't just take a dividend out to pay for a 40k car personally which althoug in a position to do so I would end up worse off by what the CSA will sting me for as a result of that.
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