Catch 22 for family firms

Catch 22 for family firms

Is tax on family-owned business' company cars a serious business threat? Damian Wild reports.

Contributions Agency officials are placing family businesses thatthreat? provide company cars in an impossible position, by being over-zealous in their enforcement of tax rules, according to a Midlands-based accountant.

Under agency rules, businesses that employ people related to the owner and provide them with company cars, have to show that non-related employees are receiving the same treatment. A failure to do so means the firm will face a steeper tax bill by treating the car as a benefit in kind.

But Contributions Agency officials in the Midlands are applying the rule to businesses that employ only members of the same family, according to Rodney de Mello of Rodney H de Mello Associates. Since these firms have no non-related employees with which to compare family members’ benefits, the cars are automatically treated as a benefit in kind.

‘The Contributions Agency is saying you are failing the test merely because you have only family members,’ said de Mello. ‘It’s placing family companies up and down the country, which have only family members as employees, in an impossible position.’

The crackdown started nine months ago and companies have faced additional tax bills of between #340 and #600 depending on the value of the car, the amount of petrol used and the mileage done.

Mr de Mello said six family-owned businesses which are clients of his had been hit with a tax bill by Contributions Agency officials. ‘Only one has pursued it to the point where the (official) says she is going to raise an assessment,’ he said. ‘With the other five, I have forcefully said if they do raise an assessment we will challenge it and seek a review because it discriminates against family members and family businesses.’

Mr de Mello said the companies he had seen targeted were based in the West Midlands, Warwickshire, and Northampton was the worst affected area.

The Contributions Agency said it had not changed its policy and said the rules treated all employees equally. ‘It doesn’t matter who the employee is, or whether they are related or not,’ said a spokeswoman. ‘At the end of the day we don’t care who has the car. What we go into to see, is whether they are liable for class 1a contributions.’

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