Tax Code

stefanboro

Hi Everyone,

Quick Question:

I have a director who has a car and private fuel taxable benefit for the company he works for.

He is now going to work for another company but will still maintain the use of the car and of the fuel from the original company.

He wishes to deregister the taxable benefit as he is no longer working for the original company.

I can sort of see his point. Technically, the original company is simply incurring costs for the services of the new company.

It just doesn't feel right.

Any thoughts?

mattaat

Tax Code

Whats happened to his original company? Did they get brought out by the company the directors now going to work for or is he doing both?

sorry to be nosey lol

stefanboro

Not at all.

The original company will still continue trading.

A further complication is that the director who is switching from one company to another owns shares in the original company.

payrollpro

This is complicated one. The rule is that a car is a company car if it provided by the employer and is available for private use. if neither these factors exist then it is not liable.

A director is treated as though they are an employee even if they do not have an employment contract with the company.

You need to look at what company 2 is paying for the car if anything. Secondly, does he remain a director of company a? What charges is he making, say for business use?

Fundamentally, I cannot believe company A is happy to pay for a car and then let him use it for work somewhere else without a balancing payment. If company B makes any payment to A for the availability of the car then it is a company car.

The other problem is what rate he claims from company B for business travel. The AMAP is only valid for the use of your own personal vehicle, but this isn't so presumably they will use the advisory rates.

An odd one, and I advise treading carefully, I don't think you have all the facts yet.

stefanboro

Company A is happy to pay for the car as it is effectively still owned and managed by the director, but the majority of the ownership and the director, at least on paper, is with a seperate individual who is like a business partner with the director.

Looking purely at the situation from a monetary point of view (i.e. if the money was loaned to the director from company A instead of a car being provided) then such a loan would be classed as a loan to a participator and would therefore incur company tax at 25%.

I know money is not being transferred but the private use of an asset is. Therefore it seems that the asset itself is a form of loan relevant to the applicable monetary amount.

However, that is me purely guessing based on related transactions I have dealt with..

stefanboro

If anyone is interested it appears to be what is referred to as a third party benefit.

More info here:

http://www.hmrc.gov.uk/guidance/cwg5part_6.pdf

payrollpro

Might not work as TPB because of the connection rules. If company A can be deemed to be connected to company B, and it looks that way because of his involvement, then a car provided by one company is deemed to have been provided by his other employer.

Are they connected persons, or companies?

stefanboro

The connection between the two companies is that they have a common shareholder. The company my director is leaving is 49% owned by a guy who owns 100% of the company he is joining. However, the particular director in question simply owns 49% of the company he has left.

That's why I was wondering if it might be classed as a loan to a participator and incur 25% corporation tax.

These people love to complicate my life.

payrollpro

I'm not sure going round the houses like this is going to work. Is it not best to look at the whole arrangement for what it is? He has a car and that car was provided by a company so the test is, has the car been provided by his company because of his employment or by reason of his employment. If he had no connection to company A and in addition if his fellow director had no connection to company A would company A continue to provide the car and I think we know the answer to that.

Company A is owned 49% by your client who is now working for company B. He cannot be a shareholder of company B because that is owned 100% by the other person but it sounds like the person who owns 100% of B also has a shareholding in A. It is my belief that the whole arrangement has occurred simply because of the relationship between the two companies and that, in my book, makes it a company car provided by company A "by reason of" his employment with company B.

As directors they are deemed to be covered by the normal employment rules as holders of an office so I am struggling to see a way round it. Even if company B reimburses A the leasing costs it is still B providing the car and that applies even if A assigns the lease to B.

Whichever way you look at it one company has obtained a car and provides it for the use of an employee of another company and since the driver has a controlling interest in the leasee I can't imagine how he can get around it.

If you get a ruling from HMRC that it is no longer a company car then let me know because I have a few people, including myself who would like to get in on it.

stefanboro

My feelings exactly payrollpro and everything you outlined in regards to the ownership structure is correct.

I have informed the director that the tax code will still stand and that I will not be de-registering the use of the asset with HMRC.

Thank you all again for your guidance.

payrollpro

Sounds like "light blue touchpaper and retire to a safe distance" to me!