Company cars

A recent case (TC02120: David John Cooper and related appeals) illustrates the dangers of tax planning and taking things a bit too far.
Mr D J Cooper and Mr P D Cooper were directors of a company. Mrs Cooper and Mr N Cooper were not directors or employees of the company. Mrs Cooper is the wife of Mr D J Cooper and Mr N Cooper is the son of Mr D J Cooper.
The four were in partnership, which provided administrative services to the company. The partnership provided cars and car fuel benefits to each of the individuals and the cars were available for their private use. The fees charged by the partnership to the company covered the costs of the partnership, including the cost providing the cars and the fuel.
HMRC argued that the car and fuel provided by the partnership were made available to Mr D J Cooper and Mr P D Cooper by reason of their position as directors of the company and to Mrs Cooper and Mr N Cooper by reason of Mr D J Cooper's position as a director of the company. HMRC assessed Class 1A NIC of around £70,000f or 2002/03 to 2008/09. For 2002/03 to 2005/06, HMRC argued discovery assessments for income tax of around £145,000 on the benefit were due on Mr D J Cooper.
HMRC argued that all of the costs of providing and fuelling the cars were met by the company through the management charges it paid to the partnership. The cars were only to persons who are directors of the company or family members of a director. If the company was not doing business with the partnership, the partnership would not be in a position to provide the cars and meet the fuel and other running costs.
In addition, to the extent the cars were used for business, they were used (in the case of Mr D J Cooper and Mr P D Cooper) on the business of the company. The partnership was little more than an extension of the company set up to avoid/reduce income tax on the cars.
The Tribunal stated:
‘It is clear beyond doubt, on the authority of Wicks v Firth, that a benefit in kind, such as the provision of the use of a car, can be provided (or, in the case of a car, having regard to the terms of section 114 ITEPA 2003, made available) by reason of the employment of a person in circumstances where it is provided (or made available) by an entity which is not the
employer of the person enjoying the benefit. Whether this is so "must depend on a variety of circumstances including the source of the benefit and the relationship, rights and expectations of the employer, the employee and the third party respectively…"’
The partnership was wholly dependent on the company - it had no business other than providing services to the company and the fees were excessive. Although it may have been the case that the partnership acquired the cars from capital contributed by the partners, the cost of the cars was ultimately borne by the company. The cars and fuel were made available by reason of employment.
The taxpayers also argued that the charges should be reduced, as the individuals had made contributions or paid sums for private use by retaining in the partnership, and not withdrawing, their profit shares.
However, the Tribunal held that there was no basis for reducing the charges – no sums had been contributed towards the cost of the vehicles or private use made good.
The appeal was dismissed.