When is a car not a car? This is a question that has interested the tax office for years and has had the effect of costing taxpayers – both individually and in business – substantial amounts if they get it wrong. A car is not a goods vehicle
Before the turn of the century, the writer argued this point with an Inspector of Taxes who took the position that a Mitsubishi Shogun owned by a forestry company was still a company car even though it had had the rear seats removed, had been fitted with winches front and rear, increased suspension height, generators and a host of other adaptations (including a tachograph) fitted for its working life. In those days, the company car benefit was dependent on the annual mileage and as the machine in question undertook less than 2,500 business miles per year but had had such extensive accessories fitted, the company car taxation at stake was quite substantial. After extended correspondence, the Inland Revenue finally conceded that whilst the vehicle may have been a “car” when it was manufactured, after adaptations, it was now primarily suited for the conveyance of goods and therefore no longer a car.
This complex argument is still with us today as the recent Coca Cola tax case has proven. Coca-Cola provide their UK technicians with a choice of either a VW Transporter T5 Kombi or a, seemingly comparable, Vauxhall Vivaro. The Vivaro left the factory in the appearance of a panel van but was later modified by Coca Cola to fit a second row of seats (which did not span the entire width of the vehicle and could only be removed with tools) and an additional window. The VW left the factory also appearing like a panel van but, critically, had side windows and full-width removable rear seats which had to be removed during working hours. Both vehicle types were then further adapted to include racking and storage areas. HMRC accepted that the vehicles should be considered to have been “constructed” after the adaptations and it was decided that the Vivaro was considered to be a van as the seats did not span the width of the vehicle allowing additional storage alongside the rear seats. The VWs failed to be classed as vans for tax purposes as the removable seats should be considered as part of the construction and as a result the VWs were deemed equally capable of carrying passengers or loads (and the requirement of the seat removal during working hours had no bearing on how the VW had been constructed). As such, not being primarily suited for the carriage of goods, the VW Kombi in this case was classed as a car for benefit-in-kind purposes.
Naturally, the Coca Cola case is specific to the facts in question but the point remains that a van is only a van for income and corporation tax purposes if it is primarily suited to the carriage of goods. Anything that is not (or has dual capability) defaults to being a classed as a car. In addition to the benefit-in-kind effects for employees (and the National Insurance effects for employers) there may then be a knock-on effect on the timing and rate of capital allowances with vans being classed as general plant (and potentially available to be included within an Annual Investment Allowance claim) whereas cars have no accelerated allowances and a reduced annual rate of relief.
To paraphrase a meerkat – Simples? Unfortunately not as we have not yet finished.
For VAT purposes, a van is a van if it has a payload capacity of one tonne or above, regardless of the seating arrangements (but watch the payload figures once the weight of any rear roof is included in the computations). As a result, a vehicle could be classed as a car for one tax but as a van for another (and whether or not VAT has been recovered on the purchase in turn affects the “cost” of the vehicle for benefit-in-kind purposes)
It is not yet certain to what extent HMRC will take issue over whether the likes of a double-cab pickup should be reconsidered being equally suited to the carriage of passengers as it is for loads and so you should not look to sell any existing vehicles purely on the basis of this latest decision. However, if you are looking at investing in your next van or pickup, consideration should be given as to what it is most suited to or whether there is a duality of ability.
Of course, a definitive list from HMRC would be extremely useful but that is unlikely to happen anytime soon.
