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14 March 2001
Replies to Queries – 3
Use of partner's car by wife
Our two business partner clients employ their wives within their business at a salary of approximately £5,000 per annum. They carry out a wide range of general duties, part of which involves delivery/collection/general business mileage in partnership-owned vehicles of approximately 4,000 miles per annum each (which is not in dispute).
Use of partner's car by wife
Our two business partner clients employ their wives within their business at a salary of approximately £5,000 per annum. They carry out a wide range of general duties, part of which involves delivery/collection/general business mileage in partnership-owned vehicles of approximately 4,000 miles per annum each (which is not in dispute).
Replies to Queries – 3
Use of partner's car by wife
Our two business partner clients employ their wives within their business at a salary of approximately £5,000 per annum. They carry out a wide range of general duties, part of which involves delivery/collection/general business mileage in partnership-owned vehicles of approximately 4,000 miles per annum each (which is not in dispute).
The partners run various vehicles through the business as different jobs/clients require specifically suited cars, e.g. 4x4 for equipment transportation, saloon for meetings/presentations, etc. (again a matter not being challenged by the Inland Revenue).
Private use restrictions of between 33 per cent and 50 per cent are made in the partnership capital allowances computations and motor expenses suitably restricted. The wives do have use of the partnership vehicles, although one wife also has her own privately owned car. The PAYE auditor is seeking to charge car benefits for their private use of the vehicles which are actually used in their 'domestic' capacity as partners' wives. The Revenue is turning its normal section 168(6)(b)/Extra-statutory Concession A71 'own qualifying right' argument on its head as there does not appear to be the same exclusion for partnership 'domestic' situations as that applicable to a sole trader – in fact partnership situations are completely absent from the Revenue manuals!
Any solutions would be welcome.
(Query T15,770) – Inequitable.
It is not clear to me from the query on whom the Inland Revenue auditor is seeking to charge the car benefit; is it the partners or their respective wives? If the auditor is seeking to charge the wives, then he is correct but for the wrong reason. He cannot charge the partners a car benefit as sections 157 and 168, Taxes Act 1988 only apply to directors or employees earning over £8,500 per annum.
It is stated that the wives do have use of partnership vehicles and, therefore, there is potentially a charge to car benefit in their own right and not because they are family. Whether there is any need to complete a form P11D or not and whether there will be a liability to tax will depend upon whether the criteria of section 157 is met, i.e. do the wives earn more than £8,500 per annum bearing in mind that this also includes the value of the car benefit and any other benefits they may have; this latter point is not mentioned in the query.
'Inequitable' also states that the partners employ their wives at a salary of £5,000 per annum: is this each? If so, and the car benefit (and any other benefits) is less than £3,500, then no P11D is necessary and no benefit is chargeable. If, however, the benefits are more than £3,500, then a liability arises on the whole of the benefit.
The partners run various vehicles within the partnership and care should be exercised in deciding which of these vehicles are used by the wives privately, as it may make a difference as to whether the benefit is chargeable or not. Inland Revenue Extra-statutory Concession A71 may come into play; I am thinking about the paragraph concerning shared cars. If any car is used by both wives, then the scale charge, if applicable at all, may be apportioned. – MJD.
This is yet another example of a pay-as-you-earn auditor trying to be parochial. He sees it as his job to obtain the maximum possible settlement in favour of the Revenue. However, due to his specialised professional background, the PAYE auditor may not be so well acquainted with other areas of tax law!
It is clear that 'Inequitable' has done the right thing in making a disallowance of capital allowances and motoring costs to equate to private usage from a Schedule D aspect. Effectively, the partner-clients would be taxed on the expenses/allowance foregone. By charging the partners' wives a Schedule E benefit, the Revenue would effectively be guilty of 'double assessment', which is expressly prohibited by the famous dictum of Lord Sumner in English Sewing Cotton Co 8 TC 513 which stated 'The Taxing Acts … nowhere authorise the Crown to take income tax twice over in respect of the same source for the same period of time'. Ask the PAYE auditor to explain how his approach takes this judgment of the House of Lords into account.
That judgment applies equally to partnerships and sole traders. If the Revenue still persists in its unfair approach, refer the matter to Regional Head Office and onwards to the Adjudicator. The writer has succeeded by quiet persistence at district level in other obvious cases of gross unfairness, where the case law is less supportive.
The usual eventual tax office response is along the lines of 'I (The Inspector) can find no specific legislation or case law that exactly squares with your clients' case, but on this occasion only, and without setting any kind of precedent, the claim/argument will be allowed/agreed'. Be persistent and do not be put off by initial refusals! – GJF.
Use of partner's car by wife
Our two business partner clients employ their wives within their business at a salary of approximately £5,000 per annum. They carry out a wide range of general duties, part of which involves delivery/collection/general business mileage in partnership-owned vehicles of approximately 4,000 miles per annum each (which is not in dispute).
The partners run various vehicles through the business as different jobs/clients require specifically suited cars, e.g. 4x4 for equipment transportation, saloon for meetings/presentations, etc. (again a matter not being challenged by the Inland Revenue).
Private use restrictions of between 33 per cent and 50 per cent are made in the partnership capital allowances computations and motor expenses suitably restricted. The wives do have use of the partnership vehicles, although one wife also has her own privately owned car. The PAYE auditor is seeking to charge car benefits for their private use of the vehicles which are actually used in their 'domestic' capacity as partners' wives. The Revenue is turning its normal section 168(6)(b)/Extra-statutory Concession A71 'own qualifying right' argument on its head as there does not appear to be the same exclusion for partnership 'domestic' situations as that applicable to a sole trader – in fact partnership situations are completely absent from the Revenue manuals!
Any solutions would be welcome.
(Query T15,770) – Inequitable.
It is not clear to me from the query on whom the Inland Revenue auditor is seeking to charge the car benefit; is it the partners or their respective wives? If the auditor is seeking to charge the wives, then he is correct but for the wrong reason. He cannot charge the partners a car benefit as sections 157 and 168, Taxes Act 1988 only apply to directors or employees earning over £8,500 per annum.
It is stated that the wives do have use of partnership vehicles and, therefore, there is potentially a charge to car benefit in their own right and not because they are family. Whether there is any need to complete a form P11D or not and whether there will be a liability to tax will depend upon whether the criteria of section 157 is met, i.e. do the wives earn more than £8,500 per annum bearing in mind that this also includes the value of the car benefit and any other benefits they may have; this latter point is not mentioned in the query.
'Inequitable' also states that the partners employ their wives at a salary of £5,000 per annum: is this each? If so, and the car benefit (and any other benefits) is less than £3,500, then no P11D is necessary and no benefit is chargeable. If, however, the benefits are more than £3,500, then a liability arises on the whole of the benefit.
The partners run various vehicles within the partnership and care should be exercised in deciding which of these vehicles are used by the wives privately, as it may make a difference as to whether the benefit is chargeable or not. Inland Revenue Extra-statutory Concession A71 may come into play; I am thinking about the paragraph concerning shared cars. If any car is used by both wives, then the scale charge, if applicable at all, may be apportioned. – MJD.
This is yet another example of a pay-as-you-earn auditor trying to be parochial. He sees it as his job to obtain the maximum possible settlement in favour of the Revenue. However, due to his specialised professional background, the PAYE auditor may not be so well acquainted with other areas of tax law!
It is clear that 'Inequitable' has done the right thing in making a disallowance of capital allowances and motoring costs to equate to private usage from a Schedule D aspect. Effectively, the partner-clients would be taxed on the expenses/allowance foregone. By charging the partners' wives a Schedule E benefit, the Revenue would effectively be guilty of 'double assessment', which is expressly prohibited by the famous dictum of Lord Sumner in English Sewing Cotton Co 8 TC 513 which stated 'The Taxing Acts … nowhere authorise the Crown to take income tax twice over in respect of the same source for the same period of time'. Ask the PAYE auditor to explain how his approach takes this judgment of the House of Lords into account.
That judgment applies equally to partnerships and sole traders. If the Revenue still persists in its unfair approach, refer the matter to Regional Head Office and onwards to the Adjudicator. The writer has succeeded by quiet persistence at district level in other obvious cases of gross unfairness, where the case law is less supportive.
The usual eventual tax office response is along the lines of 'I (The Inspector) can find no specific legislation or case law that exactly squares with your clients' case, but on this occasion only, and without setting any kind of precedent, the claim/argument will be allowed/agreed'. Be persistent and do not be put off by initial refusals! – GJF.
