News

Last year a challenge made 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 Blair looks at the case which has cause for concern and the implications it may have.

‘A year on nothing has changed, and we still have uncertainty regarding the taxable benefit treatment for certain vehicles.

Last year, HMRC 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 Coca-Cola case 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 pickups remains in place, and they will not be impacted, so where a double cab pickup 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 this and updating our clients accordingly.

Employers may be thinking about what has been charged in previous years, where they have treated similar vehicles as vans to date and, 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 2021/22 tax year, 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 contact us or visit one of our offices in Dalston, Dumfries, Penrith or Workington.