Car confusion

My client company has recently been the subject of a PAYE investigation by HMRC. This has thrown up a rather unusual and worrying liability and I wonder if other readers have met this in the past and might therefore be able to suggest a solution.

The employer company leased cars which were provided to directors and employees for private use. Until 2005 car benefits were declared on the forms P11D.

The company and employees wished to avoid the benefit charges but the leases could not be transferred from the company to the individuals so it was agreed that with effect from April 2005 the employees would reimburse the company for the lease charges and would personally meet all the other costs associated with the vehicles.

Following a PAYE compliance review the Inspector is now saying that the vehicles have been provided by reason of...