Tax Advice – When is a van really a company car?

Thursday, September 26th, 2019

Over the years here at Copia Wealth & Tax Limited, we’ve come across numerous issues regarding the taxation of company cars and, consequently, we always advise clients to contact us before they buy or lease a vehicle in order to minimise any associated risks.

We strive to provide practical and effective tax advice, as well as preparing your accounts and tax returns. With that in mind, a recent tax tribunal ruling highlighted the risks associated with inadvertently driving around in what appears to be a commercial vehicle but is in fact, for tax purposes, designated a car!

For tax purposes, when is a van not a van? 

In our view, HMRC needs to provide clarity and consistency on the tax treatment of commercial vehicles marketed as goods vehicles, particularly following a recent ruling in an upper tier tax tribunal case involving “vans” which were provided to employees of Coca Cola.

The tribunal upheld the HMRC’s view that the VW Kombi Vans in Coca Cola’s van fleet were not goods vehicles but actually motor cars for benefit in kind purposes, whereas others, the Vauxhall Vivaros in the same fleet, qualified as vans. As a result, some employees’ income tax and national insurance liabilities, as well as the employer’s national insurance liability, was significantly higher than previously expected.

Tax legislation states that a van must be a “goods vehicle”, defined as a vehicle of a construction primarily suited for the conveyance of goods or burden.

Outwardly, the appearance of the three individual vehicles in the case was similar. However, after taking account of the full characteristics of each vehicle, the two VW Kombi vans were deemed to be cars, but the Vauxhall Vivaro was found to be a van.

The first VW Kombi in the case had a removable three-person bench seat fitted in the van’s mid-section as standard, and no goods could be carried there with it in place. The rear cargo section was around three cubic metres and separated from the mid-section with a central partition. The second VW Kombi had three removable seats in the mid-section, modified with a fixed partition to separate it from the three cubic metre rear cargo section. 

Multi-purpose vehicles and ‘Benefits in Kind’

The tribunal decided that as the mid-sections were equally suitable for carrying goods and passengers, they could not be regarded as goods vehicles, i.e. the Kombis were multi-purpose vehicles.

The Vauxhall Vivaro had some modifications, including a second row of removable seats. With the seats removed, the load volume was virtually unchanged at five cubic metres but with them in place, this reduced to around four cubic metres. However, the tribunal ruled that the Vivaro was a goods vehicle as it was primarily suited to the conveyance of goods.

In essence, the design characteristics of the Kombis were deemed to be equally suitable for carrying goods and passengers and therefore had to be cars (multi-purpose). Conversely, the characteristics of the Vivaro, including its adaptations, was considered to be primarily suited to the conveyance of goods and was, therefore, a van for benefit in kind purposes.

It’s as clear as mud then

So, if there is any argument for the vehicle being multi-purpose, where does this leave employers when completing their P11D returns? In a bit of a pickle it seems and to make matters worse, at the time of writing, HMRC guidance still does not reflect the findings in this recent case.

Whilst on the face of it you might expect a VW Kombi van to be more of a van than a double cab pickup on the basis the latter has a permanent row of rear seating to carry passengers, HMRC do not agree.

To reduce risk in this area, businesses might now decide to use double-cab pickup-type vehicles, e.g. Mitsubishi L200 or Toyota Hilux, as HMRC currently accepts these as vans for benefit in kind purposes, providing their payload is at least one tonne.

Need some more help with all this?

This is still an area of uncertainty and the risks should be borne in mind when deciding on purchasing vans for your business to avoid unexpected tax liabilities, for both the business and its employees.

As ever, the team here at Copia Wealth & Tax Limited are here to help and can provide you with guidance in this area. So, before you make the purchase or sign the lease, to avoid potentially making a bad decision, call us today for a free initial consultation on 01902 783172.

We very much look forward to hearing from you.