The tax treatment of vans has become more complicated following a recent case which has been upheld at the Upper Tribunal (UT) in favour of HM Revenue & Customs (HMRC) relating to what constitutes a “van” for benefit in kind (BIK) purposes.

HMRC challenged Coca Cola’s treatment of three vehicles: a first and second generation of the VW Transporter T5 Kombi and a Vauxhall Vivaro.

The case relied on two factors in deciding whether the vehicles could be considered goods vehicles as defined by legislation. The first being whether the vehicle was of a construction to transport goods and the second being whether the vehicle was primarily suited for the transport of goods.

Although all are constructed for the transport of goods, the inclusion of the second row of seats, which are removable, and side windows meant that there was a question whether transporting goods was the primary purpose.

The UT supported the First Tier Tribunal’s (FTT) decision that the VWs were not suitable vehicles and that the Vivaro was. The difference being that the second row of seating in the VWs stretched the width of the vehicle and was bought in this form. Given the dual purpose, it could not be said to be primarily suited for the transportation of goods.

The Vivaro’s scenario was slightly different as it did not have the extra seats included in production but was subsequently modified to add them. Its second row of seats only covered half the width of the vehicle with an area left for goods alongside which was sufficient to allow the UT to accept the FTT’s decision.

What’s the impact?

This decision will potentially affect employers and employees using such combi style vans.

The employee may now have an income tax liability as they will be treated as having a car benefit. A van benefit itself may not have been applicable for the employee if private use was insignificant. As a car however, commuting would be considered a private use and so a BIK will likely be reportable on form P11D. The benefit value is calculated based on the vehicle’s CO2 emission and its list price. The value placed on the benefit can therefore be substantial.

The charge to the company is the Class 1A National Insurance which is payable on the value of the benefit provided.

For capital allowances purposes, the same construction and primary purpose tests apply. It is therefore likely that where 100% annual investment allowance in the year of purchase applied previously, only writing down allowance at 18% or 8% will now be available annually.

There should be no change to the treatment of vehicles for VAT purposes with its car definition unchanged.

What to do now?

HMRC have yet to update their guidance in relation to the approach that should be adopted for combi vans as a result of this case. However, in light of the judgement, a fuller understanding of the vehicle is needed to establish whether it falls into the van or car category.

We expect to see HMRC challenge the treatment of more vans where a second row of seats are present.

In practice, however, our recent experience shows that HMRC are on some occasions willing to consider other factors such as the type and nature of business, industry sector and factors surrounding actual use. This recent case gives HMRC additional weight to their challenges on whether a vehicle should be treated as a car rather than a van.

You may wish to review your current fleet and keep the above in mind if looking to acquire new vehicles.

We always recommend that accurate mileage records are kept for your company vehicles.

If you have any queries regarding this, please do not hesitate to get in touch with your usual Campbell Dallas contact.

Mark Pryce

mark.pryce@campbelldallas.co.uk

0141 886 6644

The information in this article should not be regarded as financial advice. This is based on our understanding in May 2019. Laws and tax rules may change in the future.