D J Cooper and Partners was formed as a partnership to provide services to one customer. The customer was a limited company which traded as a builders merchants. The partners were also shareholders / directors of the limited company.
HMRC challenged the tax treatment of cars which were owned by the partnership and used by the partners (who were also directors of the limited company). HMRC said that the directors of the limited company should have declared a benefit in kind for usage of the cars which they said were provided because of their office.
The tribunal case hinged on the commerciality of the arrangements and the court held that the partnership was wholly dependent on the company. This structure would not have existed without the connection and the partnership was seen as an attempt to avoid paying tax on what was primarily a personal benefit.
A recent tribunal case (A Ryan-Munden v HMRC) demonstrated the importance of ensuring that suitable evidence is kept to prove the taxpayer’s position.
The taxpayer was a director of a company and was provided with the use of a Mercedes. It was claimed by the company that it was a pool car and was kept at the premises of the company in a garage. There was no log of the journeys made in the vehicle.
HMRC argued that the car was for the exclusive use of the taxpayer and was therefore assessable as a benefit in kind. The director was provided with a different company car as well as owning a car privately.
The tribunal were not satisfied with the evidence presented, which included diaries of the journeys made in the car but not a log which was kept in the car, the company claimed this has disappeared. They stated that the diaries did not appear to have been maintained on a regular timely basis and were therefore not a ‘contemporary record’ of the journeys made in the car.
As there was no evidence to prove otherwise, the car was assessed on the taxpayer as a benefit, the tribunal finding it was used solely by the director.
This case shows that it is important to keep sufficient records for any claim made where tax could be at stake. It is generally the responsibility of the taxpayer to prove what actually happened. As this case shows, where such evidence cannot be produced it could be costly.
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