Could HMRC claim your company van is actually a car?

An ongoing case between Coca-Cola and HMRC regarding the tax status of company vehicles will dictate whether certain vehicles are treated as cars or vans for tax purposes.

The Court of Appeal ruled in favour of HMRC last year, deciding that the use of two vehicles (Volkswagen Kombi and Vauxhall Vivaro) should be treated as cars, not vans, for tax purposes.

This ruling means the amount of Car Benefit Charge due from both the employer (Coca-Cola European Partners Great Britain in this case) and the employees has increased.

These particular vehicles have been highlighted as they had a second row of seats fitted to carry passengers. Even if the seats are removable, HMRC are challenging whether the vehicle can be classed as primarily suited for the conveyance of goods and not passengers.

In making the judgement last year, one of the three Court of Appeal judges, Lady Justice Asplin, recognised the wider impact of the ruling, saying it was of “considerable importance” given the “large numbers” of companies using Kombis or Vivaros, or vehicles which share the same attributes of being able to carry additional passengers.

Explaining their decision, Lady Asplin stated the fact that a vehicle may look like a van is not conclusive.

Coca-Cola have confirmed they have sought permission from the Supreme Court to appeal the decision made in the Court of Appeal that some commercial vans should be reclassified as cars for tax purposes.

However, if this remains unchallenged, the Court of Appeal’s decision could set a precedent, which would affect the amount of tax paid by both employees and employers.

The legislation around company vehicles states that every mechanically propelled road vehicle is a “car” unless it is a goods vehicle (a vehicle of a construction primarily suited for the conveyance of goods or burden of any description), a motorcycle, an invalid carriage or a vehicle of a type not commonly used as a private vehicle and unsuitable to be so used. Where the vehicle has rear seats or a partition, this can impact the tax treatment and put a van status at risk.

Double-cab combi vans and double-cab pick-up vehicles have become popular in recently years. At present, they are typically being treated as a van for tax purposes, however, following the recent ruling, this may change.

HMRC have confirmed it was waiting to see if leave to appeal is granted before issuing any clarification around the classification of vehicles for tax purposes, meaning new guidance is yet to be released.

If the ruling goes ahead, the tax implications could be sizeable. For example, based on a Toyota Hilux with a list price of £30,280 and CO2 emissions of 265g/km, the difference in national insurance cost to the employer would be £2,226.68 and £6,454.40 Benefits in Kind tax difference to the employee.

In addition to the above tax implications, it is also important to consider the VAT rules in respect of cars and vans. It could be the case you have a van from a VAT perspective but a car for Benefits in Kind purposes.

For VAT purposes, a motor car is any motor vehicle of a kind normally used on public roads which has three or more wheels and either:

(a) is constructed or adapted solely or mainly for the carriage of passengers; or

(b) has to the rear of the driver’s seat roofed accommodation which is fitted with side windows or which is constructed or adapted for the fitting of side windows.

The main issue with this definition comes with (b) and vehicles which are multi-use (combination vans, double cab pick-ups etc). The main points to consider are whether the seated accommodation is for car purposes, the side window style, seat mountings, seat belt mountings and whether there are rear foot wells.

If you are looking to acquire a new company van, it is worth considering the internal lay out of the vehicle, as the tax and VAT implications could be significant. Should you have any queries relating to whether your vehicle would count as a car or a van for tax and VAT purposes, please contact us.

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