Unsure what constitutes a van or a car for tax purposes?
When an employer provides a vehicle which an employee can use privately, it is important to establish whether the vehicle is a car or a van because the benefit in kind calculations and the resulting tax and National Insurance (“NI”) charges are very different. A van is usually a much cheaper option from a tax and NI point of view than a car.
Unfortunately, it is not always as easy as you might expect to decide whether a vehicle is a van or a car for tax purposes. In March, the upper tribunal (“UT”) upheld a decision of the first tier tribunal (FTT”) that two apparently similar multipurpose vehicles provided by Coca-Cola to their employees should be treated differently for benefit in kind purposes.
The vehicles in question were a VW Transporter T5 Kombi (“kombi”) and a Vauxhall Vivaro (“Vivaro”).
The Vivaro 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.
The Kombi vans were also based on a panel van but 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 indeed Coca-Cola required their employees to remove the seats during working hours.
Coca Cola added racking and storage facilities to both types of vehicle.
For benefit-in-kind (BIK) purposes, cars and vans are defined by ITEPA 2003 s115.
A car is defined by what it is not i.e. it is not a “goods vehicle”.
A van, on the other hand, is a “goods vehicle”, with a design (laden) weight of 3.5 tonnes or less.
The statute then goes on to define a “goods vehicle” as “a vehicle of a construction primarily suited for the conveyance of goods or burden of any description”.
The FTT set out to determine if the two types of vehicle being provided by Coca-Cola to its employees met the statutory definition of “goods vehicles.”
Firstly, they focussed on whether the vehicle was “of a construction” for the conveyance of goods and concluded that it was necessary to determine if ‘construction’ referred to the state of the vehicle when it left the factory assembly line, or at the point following adaptations when it was supplied to the employee.
The UT accepted the FTT’s reasoning that what should be considered was the vehicle’s construction after adaptations.
The UT further accepted that removable items, such as the seats in the Kombi vehicles, should still be considered part of the construction of the vehicle.
The next stage of the test was to establish whether each vehicle was “primarily suited” for the conveyance of goods. The FTT had noted that this was a finely balanced decision and the UT observed that it should be slow to interfere in such multi-factorial assessment.
Where a vehicle is equally suitable for both goods and passengers, then it has no primary suitability and thus cannot be a goods vehicle. On this basis, the UT upheld the FTT’s decision that the Kombi was a car for the purposes of the benefit in kind rules.
The FTT was entitled to conclude that the vehicle was equally suited to moving passengers or goods and had no primary suitability. This was in part due to the fact that the extra row of seats could be removed for goods or reinstated for passengers.
The UT also accepted the FTT’s reasoning that the Vivaro was slightly more suited for goods given the storage to the side of its second row of seats, and therefore could be classed as a van for the purposes of the benefit in kind rules.
The tribunal’s decision clearly shows that HMRC will look closely at the benefit in kind treatment of any “van” type vehicle that has two rows of seats.
This is something that employers need to bear in mind when calculating benefits in kind on existing company vehicles and when purchasing new vehicles for employees.
To add to the uncertainty in this area, the VAT rules are slightly different and state that a car is a vehicle which, while being adapted solely or mainly for carrying passengers and with roofed accommodation to the rear of the driver, also has a payload of under one tonne.
Any vehicle capable of carrying more than one tonne will not be classed as a car for VAT purposes, even if it has two rows of seats.