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Company A and company B are associated for close company tax purposes. Company A owned the car used by the common director until March 1999 when he stopped using it and started to use his own car, claiming the business mileage under the fixed profit car scheme. Forms P11D were completed showing the business mileage as between 2,500 and 18,000 miles.
Company A and company B are associated for close company tax purposes. Company A owned the car used by the common director until March 1999 when he stopped using it and started to use his own car, claiming the business mileage under the fixed profit car scheme. Forms P11D were completed showing the business mileage as between 2,500 and 18,000 miles.
Following an enquiry under the Inland Revenue/Customs joint working project team, no adjustments arose for corporation tax, a few minor adjustments arose for VAT, but the pay-as-you-earn compliance officer is proposing to increase the benefits in kind from 1994-1995 onwards on the basis that the car does less than 2,500 business miles for company A.
On reviewing the position, less than 2,500 business miles were indeed done for company A, but more than 2,500 were done in respect of associated company B. We have referred the Revenue to Extra-statutory Concession A4 and to its Schedule E Manual at paragraph 32035, but it appears that the definition of an associated company is different from the normal tax definition, as company A or B must have a shareholding in the other and not simply be under common control. It appears that the Revenue accepts the normal definition of associated company from 6 April 2002 when a person is claiming business mileage allowance and has multiple employments (see Taxation, 2 August 2001 at page 446).
Readers' comments would be appreciated, as it seems morally wrong for the Revenue to be able to recover tax and Class 1A National Insurance and interest because it does not accept the normal associated company definition. If the car had been owned by company B, the benefit in kind position would be in order.
(Query T15,990) - Frustrated.
The problem stems from the definition of business travel at section 168(5)(c), Taxes Act 1988 which is that any travelling the expenses of which, if incurred out of the emoluments of his employment, would be deductible under section 198, Taxes Act 1988. In this case the Inspector is arguing that mileage on the business of company B is not wholly, exclusively and necessarily incurred in performance of the duties of the employment with company A.
I have only come across such a challenge once in practice and in that case there was a solution. Company A in that case also paid the salary of the director and a proportion of the cost was recharged to company B. The successful argument was that the mileage on the business of company B was a means of justifying the recharge by company A to company B. Consequently, the mileage for company B was, in fact, wholly, exclusively and necessarily incurred in performance of the duties of the employment with company A. Would the facts of 'Frustrated's' case fit with this situation? If so, I hope that this is of assistance.
Support for this argument can be found in the Inland Revenue's Schedule E Manual at paragraph SE 32041. This is an example where two companies set up a joint venture company so that there is no group relationship. An employee of one of the companies does work for the joint venture company and a charge is levied on the joint venture company for her services. The example concludes that the employee can claim a deduction for travel between the workplaces of all three companies as she is travelling in the performance of the duties of the employment with her employer when making such journeys.
If there is no recharge, it may be difficult to evidence the fact that the mileage for company B was part of the client's duties with company A, but it would certainly seem to be worth putting forward such an argument. - Regent.
Mr Justice Rowlatt once said that there is no equity about tax and I could extend that by saying there is no morality about tax. What we have is a set of rules that have to be followed.
I would point out that the version of Extra-statutory Concession A4 as it currently stands, states that companies are associated by reference to 'shareholding or other financial interest'. Is there any such common linkage? If there is, we may not need to go any further.
However, I am not sure if Extra-statutory Concession A4 is needed, because of the very nature of the benefits in kind legislation. It is designed to be all embracing. Section 167(4), Taxes Act 1988 states that all employees of a body over which an individual or partnership has control are to be treated as if they are in the employ of the individual or partnership.
If the two companies are under that sort of common control, the employments are to be treated as one. Section 167 states that this view of one employment applies for the purposes of section 167 only and not for any other purpose. However, section 167 is the section that applies the overall benefits in kind legislation. Section 157, the general charging section for car benefits, uses the phrase 'in employment to which this Chapter applies' and this Chapter is applied by section 167. This means that, although a deduction might not be due under section 198 for travelling expenses, the employment is to be treated as one for the benefits legislation.
This is not an argument that I would necessarily like to see taken all the way but it is a tenable argument and should be put to the compliance officer or Inspector to see what their views are. I suspect that they will refer to paragraph SE23306 of the Revenue's Schedule E Manual. This argument will, however, allow an appeal to the Commissioners, which at least is one step further along the line, because the problem with using Extra-statutory Concession A4 is, as with all concessions, there is no right of appeal except by way of judicial review. - New Road.
Extract from reply by 'Barham':
There is one thing to try. B has benefited, to the extent of business mileage on its affairs, by the free use of the car supplied by A. A should therefore invoice B for a suitable portion of the running costs for 1994 onwards. The proportion should be ((B mileage + private mileage) divided by total mileage). This would not only make B the supplier of the car for its own purposes but also the supplier of the private usage. This would then be reflected in amended forms P11D submitted by the companies. On that basis the assessments can be refused.
