When is a van not a van? When its a car.
The Court of Appeal has ruled that three types of modified crew-cab vehicles are cars rather than vans for tax benefit purposes. Helen Thornley from Accounting Web explains what this means for employers and employees.
This is the latest episode in a long running saga over the difference between cars and vans which has now been resolved in: Payne, Garbett and Coca-Cola European Partners Great Britain Ltd v HMRC.
With potentially thousands of these multi-purpose vehicles used by employees in the UK, the case has potentially significant and expensive consequences for employers and employees alike.
The Coca-Cola case
To recap, Coca-Cola provided employees with three types of modified vehicle, each based on a panel van design but with a second row of seats behind the driver – a so called ‘crew-cab’ vehicle. Employees could use them privately, which meant the benefit in kind position had to be considered. The vehicles in question were a first or second generation VW Transporter T5 Kombi and a Vauxhall Vivaro.
Coca-Cola argued that all the vehicles were vans, HMRC said they were all cars, with the former being more beneficial for tax purposes. However in a somewhat surprising decision, the First Tier Tribunal (FTT) determined that because the Kombis were multi-purpose, they couldn’t be considered vans and therefore fell by default into the category of car.
On the other hand, the FTT held that the Vivaro could be considered a van on fairly narrow grounds – essentially that the second row of seats didn’t span the full width of the vehicle as they did in the Kombi. That extra load space in the middle of the vehicle therefore made it, just, a van. The Upper Tier Tribunal agreed.
The Court of Appeal (CA) has now determined that all three are multi-purpose vehicles, capable of carrying both goods and people and that none of them are ‘van-like’ enough. For benefit-in-kind purposes, they need to be taxed as cars.
The definition of a van according to the relevant benefit in kind legislation requires the vehicle to be a ‘goods vehicle’. In turn, a goods vehicle is defined as ‘a vehicle of a construction primarily suited for the conveyance of goods or burden’. If it doesn’t meet this definition, then a vehicle will generally default to being taxable as a car whose primary purpose is the movement of passengers.
Since the vehicles had been modified, the wording ‘of a construction’ was relevant, with the CA agreeing with the lower courts that this should be interpreted as the condition of the vehicle after modifications and in the state that it was provided to the employee.
Where the CA disagreed with the lower courts was in how to interpret ‘primarily suited’. In the CA’s view primarily should be taken as meaning ‘first and foremost’ – so clearly more suitable for goods, not just more suitable on a fine margin.
In the CA’s view, the difference between the two vehicles was not sufficient to differentiate them and, since both were multi-purpose and equally capable of carrying goods or people, neither was primarily suited to the carrying of goods. As a result, both vehicles failed to qualify as vans for benefit in kind purposes.
The result from the CA is binding, although we don’t know if an appeal to the Supreme Court can be made. Thus employers and their advisers must take the decision into account when preparing P11D computations for 2020/21 onwards. This may mean that a further review of company vehicles is needed to confirm the correct treatment for any similar crew-cab vehicles made available to employees.
It is also important that staff involved in purchasing future company vehicles are aware of the decision and the tax implications of providing similar crew-cab vehicles where private use is permitted.
The other issue is what should employers do about earlier years now that we have a binding decision. Where an employer has treated similar vehicles as vans to date, is it now necessary to report additional tax as due, because the vehicles are cars?
It should be noted that the CA decision is very much in line with HMRC’s guidance at EIM23110. This has said for some time that, for a vehicle to be a van, it must be primarily suited for carrying goods and that vehicles which have side windows behind the driver and which can be fitted with additional seating are unlikely to meet the definition of a van.
Accordingly, where a vehicle has not been reported in line with both that guidance and the (now) final decision, there is potentially the risk of HMRC enquiry and employers affected by the decision should consider taking specialist advice on the next steps.
Our take on this?
While we must bear in mind that the ruling only currently applies to the vehicles in the case (first or second generation VW Transporter T5 Kombi and a Vauxhall Vivaro) that have been converted into Crew-Cabs this is a worrying direction of travel from HMRC.
While HMRC’s guidance has not changed, this is the first real opportunity it has had to prove its point which it has done so successfully.
Bearing in mind that many will have bought these vehicles on finance, we may be stuck with them as the market no longer views them as attractive with the tax advantages removed. Similarly an employee who has previously not received a benefit-in-kind charge may feel aggrieved at receiving one (and having to now take a personal tax hit) for driving the same vehicle.
Our bigger concern is that this victory emboldens HMRC and they start to look at the much larger (and lucrative) pick-up truck market. While this has not started, HMRC’s view of looking at seemingly innocuous legislation and seeking to monetise it is borne out by this case and one can only wonder where the next attack will come from.
If you are affected by this ruling then please get in contact and we will take you through the implications in detail so you are fully aware of the changes and costs in advance of the next round of reporting for benefits-in-kind.
You can find other helpful blog posts on Taxation here.