Using an LLP for car ownership

When a company provides an employee or director with a car the business can offset the cost of the vehicle against business profits, but the rate at which this relief is given is restricted.

The carbon dioxide emissions of the vehicle affect the tax treatment, with cars that emit more than 160 g/km being given a much slower rate of relief than more efficient vehicles.

For a car emitting more than 160 g/km, such as a 2‑litre petrol Ford Mondeo, the tax relief given to a company is limited to 10% of the cost in the first year.  From April 2012 this is reducing to just 8%.

Cars with lower emissions fare a little better, but still only 20% of the cost can be claimed, which reduces to 18% from next April.

In the following year either 8% or 18% of the remaining cost is given as a tax allowance, and so on in subsequent years.

This would be little more than a cashflow consideration, delaying the timing of tax relief for the cost of the car, but where the vehicle is replaced the remainder of the cost of the vehicle is only given tax relief at these slow rates in coming years.

The effect of this for many companies is that an ever increasing balance of unrelieved expenditure on cars will build up, as each car is likely to depreciate faster than the rate at which tax relief is given.

However, using a separate partnership, especially in the form of a Limited Liability Partnership (LLP) to supply the cars may provide one solution to this problem.

Any unincorporated business can separate cars with any private use in individual "tax pools" such that when it the vehicle is sold or replaced any unrelieved expenditure is automatically given.  This overcomes the problem of an increasing sum of unrelieved expenditure.

The use of an LLP can also have many other advantages, as it is a separate legal structure, but taxed in the same way as a partnership. 

For cars, in particular, it can be a very attractive structure as the provision of cars to the members of the LLP will not give rise to taxable benefits in kind, thus avoiding another headache for owner‑managers.

If you would like detailed to review whether an LLP could save tax on the cars used in your business please contact Alan Rolfe, Tax Manager on 023 8046 1200.

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