A challenge by HMRC in the Court of Appeal may impact how some vehicles are classified, either as a van or a car, creating Benefit In Kind (BIK) tax implications for employers across the UK. Tax Partner Sue Jeffrey looks at the case which has cause for concern and the implications it may have.
HMRC have recently won a case in the Court of Appeal against Coca-Cola, which could have tax implications for all employers who provide employees with certain vehicles.
In the Coca-Cola case, the company argued that a Volkswagon Kombi and Vauxhall Vivaro, which had been modified, were vans, and HMRC argued they were cars. Both vehicles had a second row of seats fitted in the mid-section of the van and space in the rear of the vehicle for goods.
HMRC won the case in the Court of Appeal and it was decided that the vehicles were no longer ‘predominantly’ for carrying goods or burden, so they cannot be classed as vans and the BIK is calculated under the rules for cars, which gives a much greater tax bill.
The potential implications of this decision for taxpayers are significant, and the Court of Appeal decision is binding. The classification is important for employers given that the tax and Class 1A national insurance cost of a vehicle considered to be a car, is much higher than the cost of a van benefit in kind.
We do not know yet whether HMRC will use this outcome to focus on wider classes of cars which are similar in nature, such as double cab pick-ups. The vehicles in the case in question are not double cab pick-ups, however, the test has been set and a vehicle must ‘predominantly’ be for carrying cargo to be classed as a van. The fact that it is capable of carrying both cargo and passengers is stated not to be enough.
For the time being, it seems that HMRC guidance on double cab pick ups remains in place and they will not be impacted, so where a double cab pick up has a payload of one tonne, it will continue to be classed as a van. Whether or not HMRC reflect on their guidance in light of the case and issue new guidance remains to be seen, but we will be monitoring their reaction to the case closely and update our clients accordingly.
Employers may be thinking about what has been charged in previous years and, where they have treated similar vehicles as vans to date, if they should be reporting additional tax. What we do know is that those involved in purchasing future company vehicles need to be made aware of the Coca-Cola case and the tax implications of providing similar vehicles where private use is permitted.
Employers should also take the decision into account when preparing P11D computations for 2020/21 onwards, which could mean a review of company vehicles is needed to confirm the correct treatment for any similar vehicles.
If you would like to discuss tax implications relating to this case or to your business specifically, please get in touch.
HMRC’s Employment Income Manual on S 115(1) ITEPA 2003 currently states:
“From 2002/03, when deciding whether double cab pick-ups count as cars or vans, HMRC will interpret the legislation that defines car and van for tax purposes in line with the definitions used for VAT purposes. The position in respect of earlier tax years remains unchanged.
Under this measure, a double cab pick-up that has a payload of 1 tonne (1,000kg) or more is accepted as a van for benefits purposes. Payload means gross vehicle weight (or design weight) less unoccupied kerb weight (care is needed when looking at manufacturers’ brochures as they sometimes define payload differently).”
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