Getting the designations right when it comes to company vehicles has always been an area where care is needed. But a recent ruling has muddied the waters in respect of vans versus cars, and the feeling is that HMRC must at least update its guidance
Last month, one area of tax law for businesses got murkier, and nothing in the intervening days has clarified the picture.
A judgement handed down in September at a first-tier tax tribunal over the classification of vans has not only failed to clear things up – it’s made matters worse.
The ruling related to a dispute between HMRC and Coca-Cola over the status of some vehicles in Coca-Cola’s fleet.
In the frame were two models of Volkswagen Kombi alongside Vauxhall Vivaro vans, and the Kombis (would you believe it) were found by the judge to be cars while the Vivaro qualified as a van.
So far, so confusing. And it gets worse, because the judgement also makes many points that contradict HMRC’s own guidance.
First, let’s take a step back. None of this has been a short time coming.
The appeal took in the wide context of vehicles supplied by Coca-Cola to its employees over many years. Until 1997, the company provided estate cars but then it decided the employees needed vans because they had to carry more and heavier equipment than before.
The move would seem to have been clear-cut, but in fact it opened up a can of worms in tax terms. Stripped back to the essentials, Coca-Cola claimed the replacements were goods vehicles within ITEPA 2003, s 115(2), while HMRC disagreed, saying they should be subject to the company car rules.
The First-tier Tribunal eventually split the difference with its appeals ruling. The judge decided the Volkswagen Transporter Kombis were cars but the Vauxhall Vivaro were vans. Both types of vehicles have two rows of seats and a payload of more than one tonne but the tribunal said the Vivaros should be classed as vans due to the significant cargo space available in the middle section.
So Coca-Cola’s appeal was allowed in so far as it related to the Vivaro, but the appeals that related to the Kombis were dismissed.
Not a clear picture
Graham Farquhar, partner at the accountancy practice RSM, says the judgement is unsatisfactory in that it contradicts current HMRC guidance, which therefore should be updated, and also clashes with the DVLA definition of a van when setting speed limits.
“We have this situation where HMRC guidance puts things one way, and the judgement applies different criteria,” says Farquhar.
“To determine if a vehicle is a van, HMRC says you apply a test at construction, looking at variables including payload and the set-up with the windows and the designation set by the manufacturer.
“Yet the ruling, in finding in favour of HMRC regarding the VW Kombis, has contradicted the HMRC guidance. In the ruling, it was found necessary to look at all the characteristics of the entire vehicle as provided to the employee, not just at construction. The side windows were considered irrelevant and being multi-purpose does not rule out the van being constructed primarily for the purpose of carrying goods.
“In the case of the Vivaro being classified as a van, the over-riding factor seems to be the significant cargo space available in the middle section, even with the middle seats in place, compared with the VW Kombi.”
What happens next?
Alastair Kendrick is a tax expert at the accountancy and business advisory practice MHA MacIntyre Hudson, and he argues there isn’t yet, however, an imperative for HMRC to issue new guidance.
“Because this was a first tier tribunal, it hasn’t set a legal precedent, so I don’t think companies should be holding out for fresh guidance. If they are confused, they should get some advice and review their choices carefully.
“Having said that, there are some grey areas in relation to cars and vans and how they are judged as a benefit in kind.
“This case looked at two combi vans, and the judgement was quite subtle, but there are relatively few of these sold each year in the UK. That means the impact on businesses is that much less, because few are making the choice to buy combi vans anyway.”
Kendrick says the bigger issue that might need to be revisited by HMRC is the status of doublecab vans, which are much more popular.
“It’s still the case that the purpose of a vehicle at construction is the proof point, and that kerb weight is a factor in the judgement. But there is an opportunity for the Office of Tax Simplification to review the landscape of vans and commercial vehicles and make things simpler. That would be welcome.
“The big concern in the industry that sells these vehicles is a reclassification of doublecab vehicles. That would be a big deal. So any guidances that rules that out in clear terms would be welcome by businesses and by those that sell to them.”