ATT Technical Officer The Association of Taxation Technicians
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Multi-purpose vehicles with crew-cabs are cars

The Court of Appeal has ruled that three types of modified crew-cab vehicles are cars rather than vans for tax benefit purposes. Helen Thornley explains what this means for employers and employees.

7th Aug 2020
ATT Technical Officer The Association of Taxation Technicians
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Coca-Cola van case overturned at Court of Appeal
iStock_Crew cab van_Tramino

This is the latest episode in a long running saga over the difference between cars and vans, which has now been resolved in: Payne, Garbett and Coca-Cola European Partners Great Britain Ltd v HMRC.  

With potentially thousands of these multi-purpose vehicles used by employees in the UK, the case has potentially significant – and expensive – consequences for employers and employees alike.

The Coca-Cola case

I first wrote about the Coca-Cola case in April 2019, shortly after the upper tribunal (UT) upheld an earlier first tier tribunal (FTT) decision on the car versus van question.

To recap, Coca-Cola provided employees with three types of modified vehicle, each based on a panel van design but with a second row of seats behind the driver – a so called ‘crew-cab’ vehicle. Employees could use them privately, which meant the benefit in kind position had to be considered. The vehicles in question were a first or second generation VW Transporter T5 Kombi and a Vauxhall Vivaro.

Coca-Cola argued that all the vehicles were vans, HMRC said they were all cars, with the former being more beneficial for tax purposes. However, in a somewhat surprising decision, the FTT determined that because the Kombis were multi-purpose, they couldn’t be considered vans and therefore fell by default into the category of car.

On the other hand, the FTT held that the Vivaro could be considered a van on fairly narrow grounds – essentially that the second row of seats didn’t span the width of the vehicle as they did in the Kombi. That extra load space in the middle of the vehicle therefore made it, just, a van. The UT agreed.

The Court of Appeal (CA) has now determined that all three are multi-purpose vehicles, capable of carrying both goods and people and that none of them are ‘van-like’ enough. For benefit-in-kind purposes, they need to be taxed as cars.  

Goods vehicle

The definition of a van according to the relevant benefit in kind legislation requires the vehicle to be a ‘goods vehicle’. In turn, a goods vehicle is defined as ‘a vehicle of a construction primarily suited for the conveyance of goods or burden’. If it doesn’t meet this definition, then a vehicle will generally default to being taxable as a car.

Since the vehicles had been modified, the wording ‘of a construction’ was relevant, with the CA agreeing with the lower courts that this should be interpreted as the condition of the vehicle after modifications and in the state that it was provided to the employee.

Marginal difference

Where the CA disagreed with the lower courts was in how to interpret ‘primarily suited’. In the CA’s view primarily should be taken as meaning ‘first and foremost’ – so clearly more suitable for goods, not just more suitable on a fine margin.

In the CA’s view, the difference between the two vehicles was not sufficient to differentiate them and, since both were multi-purpose and equally capable of carrying goods or people, neither was primarily suited to the carrying of goods. As a result, both vehicles failed to qualify as vans for benefit in kind purposes.

Implications

The result from the CA is binding, although we don’t know if an appeal to the Supreme Court can be made. Thus employers and their advisers must take the decision into account when preparing P11D computations for 2020/21 onwards. This may mean that a further review of company vehicles is needed to confirm the correct treatment for any similar crew-cab vehicles made available to employees.

It is also important that staff involved in purchasing future company vehicles are aware of the decision and the tax implications of providing similar crew-cab vehicles where private use is permitted.

Earlier years

The other issue is what should employers do about earlier years now that we have a binding decision. Where an employer has treated similar vehicles as vans to date, is it now necessary to report additional tax as due, because the vehicles are cars?

PCRT to the rescue

Some guidance to agents on when to take corrective action following a court decision is available in help sheet C of the Professional Conduct in Relation to Taxation (PCRT). Whether an amendment is now required depends very much on whether or not the treatment of vehicles like the VW Kombi as a van and not a car could be considered the prevailing practice at the time that earlier years’ returns were prepared.

When considering that question for the most recent 2018/19 and 2019/20 tax years, agents and employers should have been aware of the UT decision (although also aware it was being appealed) and have taken this into account when preparing returns for these years.

For 2017/18 returns, the initial FTT decision was not binding at that stage and, given that it could have been overturned on appeal, there is an argument that this single case was not enough to justify a change of position at that point.

HMRC guidance

It should be noted that the CA decision is very much in line with HMRC’s guidance at EIM23110. This has said for some time that, for a vehicle to be a van, it must be primarily suited for carrying goods and that vehicles which have side windows behind the driver and which can be fitted with additional seating are unlikely to meet the definition of a van.

Accordingly, where a vehicle has not been reported in line with both that guidance and the (now) final decision, there is potentially the risk of HMRC enquiry and employers affected by the decision should consider taking specialist advice on the next steps.

 

Replies (22)

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By memyself-eye
08th Aug 2020 18:07

where does this put flat bed vehicles such as the Ford Ranger......

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By Paul Crowley
08th Aug 2020 21:45

I have always struggled with the idea that no windows could in any way determine the status of a vehicle. Vans with windows are inherently safer in the hands of any driver.
Would no rear seats but windows still have failed?
Surely the interior capacity should be the critical basis for a reliable and respected legal decision.

The real problem is that Coca-Cola replaced cars with 'vans' at varying levels of customisation for previously higher level managers that had never carried any product or tools. The end result of the customisation was to create people carriers, a vehicle type that is and always has been a car.

I vote we all change to Pepsi

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By unearned luck
10th Aug 2020 00:48

Assuming that this decision is final or is upheld by the SC, the extent to which relevant employers are liability to further class 1A NIC and their employees are liability to further income tax is a matter for the law not the PCRT.

I doubt that HMRC will accept the prevailing practice defence given HMRC's view, as stated in their manual, is that vehicles such as these are unlikely to be vans. This is subject to the proviso that I don't know how long this view has been so expressed.

Given that the pp defence is unlikely to apply, the duty to notify under the PRCT remains live.

Employees with double cab pick-ups with a payload of more than 1 tonne will think this decision a payne, but they should benefit from the prevailing practice defence.

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By PaulHesp
10th Aug 2020 09:39

I may be way off track here, but could this decision also have implications on VAT treatment of vans? I believe that VAT on the purchase of a "van" can currently be claimed back, but if these crew-cab vehicles are no longer vans but cars, does that imply that businesses could not claim back the VAT?

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Replying to PaulHesp:
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By Echo761
10th Aug 2020 09:52

Exactly right Paul! This potentially raises (again) issues over the VAT treatment.

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Replying to PaulHesp:
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By Tri622
10th Aug 2020 11:02

What about when it comes to selling the vehicle? - if its now a car you presumably wouldn't charge VAT on the sale but you would have claimed it on the purchase? Not sure the VAT man will accept that?!

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Replying to PaulHesp:
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By unearned luck
10th Aug 2020 21:24

You and Echo must live in Erewhon where the tax system, at least, looks like someone designed it. We here in the UK are not so lucky. Any claim that the UK tax system is designed hasn't even an ounce of verisimilitude. Often the UK tax system has one definition for a term for tax A and has a different definition for tax B. In this case the two taxes in question start in different places. Broadly, the BIK law defines 'van' and whatever does not fit that definition is a car. VAT law defines 'car' and whatever doesn't fit that definition is a van.

Also the language is different 'primary' v 'mainly'. This difference is what, in effect, sunk the Vivaro.

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Replying to unearned luck:
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By Echo761
11th Aug 2020 09:10
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Replying to PaulHesp:
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By Paul Crowley
13th Aug 2020 18:00

The definitions are different.
There has always been differences VAT vans and BIK vans
Vat has carry weight, BIK carry space

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By johnjenkins
10th Aug 2020 09:53

The only way, as I see it, to avoid all the "benefits" is to have a clause in the employment contract that specifically prohibits private use of these vehicles (they are then not available for PU). Once trackers are fitted it would seem HMRC wouldn't be able to go down the "benefits" road. Contentious?

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By Di
10th Aug 2020 10:09

Will this decision effect AIA claims on crew cab pickups?

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Replying to Di:
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By johnjenkins
10th Aug 2020 10:19

As it stands theses vehicles are classified as cars. Now it would be interesting if someone makes an AIA claim, it's challenged by HMRC and we start the whole process of tribunals again. Surely a SC ruling has to be made.

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By dmmarler
10th Aug 2020 11:27

Why did everyone waste so much time and money on this? The original statutory instrument which defined cars from vans said quite clearly that vehicles with side windows behind the driver were cars and not vans - I recall having to check this definition years ago and won an EY brownie point over KPMG in a litigation matter. If it was repealed by mistake, HMRC would have hung onto the definition as it so straightforward.

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Replying to dmmarler:
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By johnjenkins
10th Aug 2020 11:43

I'm not so sure that HMRC would win a case against one of these vehicles that was used exclusively for work (I'm not talking about employed tax payers). We could certainly have a situation where the vehicle is "taxed" as a car yet AIA could be claimed. Surely the crunch is what the vehicle is used for and not what the "tax" criteria is.

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By Ralph-gab
10th Aug 2020 12:39

DVLA have a vehicle category of "Van with side windows", which would suggest that side windows do not preclude a vehicle with side windows from being a van. Many people converting vans to motor caravans have had their application to classify as a motor caravan refused and classed as a van with side windows.

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By Mallock
10th Aug 2020 13:21

HMRC's Employment Income Manual on S 115(1) ITEPA 2003 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)."

This case, as far as I can see, applies to panel vans which have been converted to carry some passengers and not qualifying double cab pick-ups.

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Replying to Mallock:
Ivor Windybottom
By Ivor Windybottom
10th Aug 2020 15:30

Yes, exactly, but the risk is that HMRC may say that this is non-statutory and so taxpayers must follow the Coca Cola ruling and define (most) double cab pick-ups as cars.

All this stems from ill-defined law. Surely a measurable definition, such as the VAT 1 tonne threshold or the V5 category, would have provided a better way of organising the tax system.

Where is the Office for Tax Simplification when you need them??!

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Replying to Mallock:
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By unearned luck
10th Aug 2020 21:45

I don't think that is correct to describe these 'crew cab vans' as converted.

The only difference I can see between these 'vans' and double cab pick-ups is a roof over the payload area. Even that difference disappears when a hard-top is fitted.

If you compare the manual to the C0A's view (summarised in the article) you will see that the manual is hopelessly wrong in saying that it is difficult to tell (hence the payload criterion which can give rise to different treatments simply by the weight of the hard-top fitted. A vehicle must overwhelmingly be constructed for carrying goods for it not to be a car.

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By Paul Crowley
13th Aug 2020 18:18

This whole discussion demonstrates that the law is only what the latest judgement decides: until the next one. The one before that had a different opinion.
If a van can not be defined adequately in words then it is not in any way defendable to say ' the law states....'
We have had 100 years of vans and only now do we have a legal ruling on what a van is? Or has every other ruling been right at the time but wrong now?

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By AndrewV12
14th Aug 2020 10:47

Makes you think, do now or in the future van manufactures take into account the tax rules when designing vehicles.

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Replying to AndrewV12:
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By Paul Crowley
14th Aug 2020 15:39

They do and they did. Vans sold as standard are vans satisfying both definitions.
It was Coca Cola (quite a big firm, so I hear) that chose Coke designed customisation that made these vehicles not vans. Some customisation resulting in kerb weight failed van rules but if you saw any of the Combies as designed by Coke, you would not think they were vans, 100% people carriers and as BMW people would say, fully loaded.

VW did what they were paid to do, change a van into a car

All the employees had cars and good old USA Coke thinking decided to make a mockery of the UK tax 'loophole' they thought wrongly to have discovered.

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By Paul Crowley
20th Aug 2020 17:33

'Multi-purpose vehicles with crew-cabs are cars'

Disagree with the statement. Lorries have crew cabs

That case was all about modifications from standard vehicles

John has chosen to guide from Double cab pickup to here. Did you discuss that link and agree that it was a good idea?

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