When is a van not a van?

You would think it would be quite straight forward but a recent ruling by The Court of Appeal challenges everything we thought knew about ‘what constitutes a van’.

A recent and long running case concerning whether crew-cab vehicles should be treated as cars or vans for company benefit purposes has been concluded in HMRC’s favour with potentially significant implications for businesses and staff that use these types of vehicles.

The problem is that this can have large tax implications for both the company and the employee. With crew cabs growing in popularity and having the flexibility to carry both goods and people, doubt has been thrown into the classification of these vehicles in terms of Benefit in Kind reporting.

Paul Tofton, partner at Forrester Boyd looks at the case in more detail and the potential impact that this binding decision is going to have on businesses and their employees.

At the core of the Coca-Cola case was the definition of a goods vehicle which is “a vehicle of a construction primarily suited for the conveyance of goods or burden”. The Upper Tribunal in this case ruled that “of a construction” means you must look at the vehicle in the state it was provided to the employee, including any post-factory modifications.

HMRC’s focus was the presence of a second row of seats commonly known as a “crew-cab”. The Court of Appeal has now ruled in the Coca-Cola case that if the vehicle is equally suitable to carrying either goods or people, it fails the “to be primarily suited for any purpose” and therefore defaults to being treated as a car for the purpose of benefit in kind (BIK).

The two crew-cab vehicles Coca-Cola provided to employees were VW Kombi and Vauxhall Vivaro vehicles. Both had been modified to different extents with the former having a removable row of seats installed in the factory and the latter having a semi-permanent row installed after the vehicle left the production line. After various appeals from both sides of the case the treatment is now aligned in favour of HMRC and these types of vehicle are now to be treated as cars for income tax purposes.

Implications

With a degree of judgement involved in determining whether a van is equally suited to carrying both goods and passengers, it could turn out to be expensive if people get it wrong given that cars are assessed based on emissions and list price rather than a flat rate.

Essentially the above, binding decision at the Court of Appeal means that 2020/21 P11D’s will need to reflect the outcome of the case very carefully (subject to any Appeal to the Supreme Court). This will not simply be a case of reviewing those van benefits already being declared to HMRC, as it may also affect ‘vans’ that have historically not been considered a benefit as they are simply taken home by employees overnight and used for commuting.

It is therefore important for employers to review their fleet and fuel provision for any crew-cab vehicles and consider their options carefully and any businesses looking to buy a crew-cab vehicle should also be aware of the implications for Income Tax.

Capital Allowances

HMRC have not yet provided full guidance on the above case, nor have they clarified the position in relation to capital allowances or VAT which we are hoping to be released soon to give some certainty as to the wider tax position.

As the definition of a car for capital allowances is almost identical to that for employee benefits, it is likely that a crew-cab vehicle (now defined as a car for employee benefits) may also be a car for capital allowance purposes.

Cars do not qualify for the annual investment allowance (AIA), but vans do, so where a claim for the purchase of a van has been made under the AIA, that claim may now have to be revised if the vehicle has been re-categorised as a car.

Double-Cab pickup

The Coca-Cola case specifically looked at crew-cabs and interestingly does not result in any immediate changes to the treatment of the double-cab pickups. HMRC has generally regarded these vehicles as vans for the purpose of income tax if they meet certain payload criteria.

Given the HMRC’s successful appeal in the Coca-Cola case double-cabs could always be challenged next.

You can read the HMRC guidance along with the Upper Tribunal hearing and Court of Appeal judgement here.

HMRC’s car or van guidance: EIM23110

Upper Tribunal: HMRC v Payne, Garbett and Coca-Cola

Court of Appeal: Payne, Garbett and Coca-Cola v HMRC