Home Contractor's CornerTotal Vehicle Is your vehicle a car or a van? it should be easy to answer…

Is your vehicle a car or a van? it should be easy to answer…

by Matt Downs

…but it’s not as straightforward as you might think, and it can have big implications on both the company’s and employees’ tax. We take a look at the problem of crew-cab panel vans.

Crew-cab panel vans are proving very popular at the moment, with the flexibility to carry both goods and people thanks to the extra row of seats behind the driver. However, a recent case involving drinks firm Coca-Cola has thrown doubt on the tax treatment of these vehicles when employees are allowed to use them for personal as well as work purposes.

As any accountant will know, falling on the ‘van’ side of the line is far more beneficial for both the employee and employer

Helen Thornley, Technical Officer at the ATT, says that those considering purchasing a crew-cab van which employees will be allowed to use privately, need to be aware of the potential tax risk that this case could cause. She says: “Getting it wrong could cost both you and your employees more in National Insurance contributions (NIC) and income tax than you expected. To further complicate matters, the Coca-Cola case is currently being appealed and until a final decision is reached, this is an area of uncertainty.” In other words, she says to tread carefully.

The Coca-Cola case

The origins of the case aren’t new: Back in 1997, Coca-Cola moved to supplying its mobile technicians with vans instead of estate cars. The vans at the heart of the case were three types of crew-cab vehicle – a series 1 or series 2 VW Kombi and a Vauxhall Vivaro.

“All three vehicles look very similar from the outside,” says Thornley, “as they are based on a panel van design and marketed as commercial vehicles. Each vehicle had some form of additional seating and windows behind the driver and had been subject to further modifications after manufacture, such as the addition of racking, to suit Coca-Cola’s needs.”

She continues: “All the vehicles had been treated by Coca-Cola as vans for benefit-in-kind purposes. HMRC disagreed and challenged this, arguing that all three types were, in fact, cars. This resulted in the issue of demands for additional NIC and income tax from both Coca-Cola and their technicians. Coca-Cola and their technicians appealed and in March 2019, an earlier tribunal ruling which decided that the two VW Kombis were cars and the Vauxhall Vivaro was a van was upheld by the Upper Tribunal.”

Why does this matter?

The case matters because the definition of a car or van makes a big difference to the tax treatment when the employee is allowed private use of the vehicle. As any accountant will know, falling on the ‘van’ side of the line is far more beneficial for both the employee and employer.

The rules state that when an employee is provided with a car and they are allowed to use it privately, they must pay income tax on the value of the benefit in kind. This is calculated as a percentage of the list price of the car, including any accessories. The percentage used will depend on the CO2 emissions of the car and can be up to 37% of the list price. If private fuel is provided, the same percentage is applied to a set figure (£24,100 for 2019/20) to calculate the benefit for the year. The employer must also pay Class 1A National Insurance contributions (NIC) on the value of the benefit-in-kind. This can clearly get expensive.

But where a van is used privately, the benefit in kind is calculated based on a flat rate (£3,430 for 2019/20) regardless of the cost of the van or its CO2 emissions. If any fuel is provided for private use, then the fuel benefit charge is also a flat rate, which is much lower than the car equivalent (£655 for 2019/20).

It’s worth noting that, as Thornley explains, “as well as a van having a lower benefit in kind charge than a car, it is possible for there to be no benefit in kind at all if the private use of the van is incidental or limited to ordinary commuting from home to work.” She says that this compares very favourably with the provision of a car where, even if the private use is insubstantial, a benefit in kind must always arise.

The effect of the Coca-Cola case

The Coca-Cola case has caused controversy because three vehicles which are superficially so similar have fallen either side of the car/van divide.

For Thornley, what differences there are between the vehicles appear to centre around the seats to the rear of the driver. The Vivaro vehicle held to be a van left the assembly line as a panel van and was subsequently modified by Coca-Cola to add a second row of two seats behind the driver, together with a single window. The seats did not span the full width of the vehicle, leaving some storage space to the side. These extra seats could be removed, but only with tools.

Whether a vehicle is a car or a van is not as straightforward as you might want to believe. But that’s the situation with much in tax law

In comparison, both models of the Kombi vehicles held to be cars arrived from the manufacturer with a second row of seats already fitted: This “row spanned the full width of the vehicle, and there were windows on both sides. However, the whole row of seats could be removed without tools and it was a company requirement that the seats were removed during working hours.”

In practice

So, what does this mean for firms looking to acquire a crew-cab vehicle in the near future? It’s simple as far as Thornley is concerned. She makes it plain that they “should be aware of the case and take advice on the potential tax treatment of the vehicle before purchase… if a decision is taken that the vehicle is a van, and it is subsequently found to be a car, the tax implications could be significant.”

The position is muddied by the fact that the case is under appeal and so the current decision by the Upper Tribunal cannot be taken as final and may be overturned.

It doesn’t help that HMRC has not issued any new guidance as a result of the March 2019 Coca-Cola decision. Says Thornley: “The existing guidance [from HMRC] remains that it will consider a vehicle with side windows behind the driver and passenger doors to be unlikely to be a van.”

But, according to Thornley, there’s more to choosing a vehicle than an employee’s benefit in kind position. She says that the type of vehicle also “affects the capital allowances available to the employer – the tax relief they can claim for the cost of the vehicle and the VAT recovery.” She outlines the principle that a vehicle that is classified as a car for benefit in kind purposes is likely to be considered a car for capital allowances purposes since the definitions are similar, although not identical. Again, being classed as a van is preferable for tax.

And to further complicate matters, Thornley says that the definition of a van for VAT purposes is different, and a vehicle is not a car if it has a payload of more than one tonne – “it is possible for a vehicle to be a car for benefit in kind purposes because of the seats and a van for VAT purposes because of its payload.” For VAT recovery purposes it is preferable to be a van.

Those with existing vans

But just as the issue affects the acquisition of new vans, so it has implications for employers who have already provided crew-cab vehicles to their employees and have treated them as vans for benefit in kind purposes; they also need to keep the position under review.

Thornley sums up the position: “Following the Coca-Cola ruling, employers should have reviewed the tax treatment of all crew-cab type panel vans provided to their employees before preparing P11D returns which reported the benefits in kind for 2018-19.” She adds: “Unless it was possible to distinguish their vehicles on the facts, some employers will have found themselves in the position that certain vehicles could no longer be considered a van and must be taxed as a car, significantly increasing the tax cost for both them and their employees.”

Whatever happens when the case is ruled on at the appeal, employers will have to act. Thornley says that if the outcome of the Coca-Cola case changes, then employers may need to revisit their 2018-19 P11D returns. But if the current decision is upheld, then employers will need to consider if they should amend returns for earlier years if they have treated a vehicle as a van that should have been considered a car. She warns, though, that employers “should always take advice before amending earlier years.”

For the moment, her advice is that “provided that reasonable enquiries were made, and an informed decision was taken at the time, given the uncertainty, it is reasonable to wait until the case is final before making a decision about amending earlier returns.”

So, until the case is final, whether a vehicle is a car or a van is not as straightforward as you might want to believe. But that’s the situation with much in tax law.

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