P11D: To amend or not to amend?
Helen Thornley considers the further repercussions of the Cola-Cola case, which decided that certain van-like vehicles should be treated as cars for tax benefit purposes.
Following the decision of the Upper Tribunal (UT) in the Coca-Cola case, many tax advisers will be faced with having to treat vehicles previously considered to be vans as cars. The question then arises: how far back do tax advisers need to go when it comes to earlier years’ P11D returns?
We reported on the Coca-Cola case in April. To recap, three apparently similar models of multipurpose vehicles were provided by Coca-Cola to their employees. All three models had been modified post-manufacture, but the first and second-generation VW Transporter T5 Kombi vehicles were held to be cars for benefit in kind purposes, while the Vauxhall Vivaro was held to be a van.
In a further complication, since April 2019 we have learned that the case is likely to go to the Court of Appeal, with the Court of Appeal’s Case Tracker indicating that the application for permission to appeal is pending. This means that the UT decision cannot be considered final at this stage.
However, the UT decision sets a binding precedent for lower courts, and it was published in time for tax advisers to be required to consider the impact when preparing P11D returns for 2018/19, which had to be filed by 6 July 2019.
Despite the potential appeal to a higher court, the prudent adviser will have reviewed the tax treatment of all crew-cab type panel vans provided to employees by reason of their employment, not just the specific vehicles covered in the case.
Unless their client’s vehicles could be distinguished on the facts, some advisers will have found themselves in the unenviable position of having to tell clients that, in light of the decision of the UT, certain vehicles could no longer reasonably be considered a van and must be taxed as a car for benefit in kind purposes.
Since this would significantly increase the tax cost for both employee and employer, it is unlikely that such a decision would have been welcomed by clients or their staff.
Any tax adviser who found a client unwilling to accept their advice would need to consider their obligations in respect of both anti-money laundering (AML) requirements and under the Professional Conduct in Relation to Taxation rules (PCRT).
What about previous years?
Following the decision, both the ATT and CIOT received a number of queries from members about what obligations tax advisers might have to revisit prior years and refile P11D returns where vehicles now classed as cars had been treated as vans. This is an exceedingly complex area and advisers need to consider not just the technical tax aspects, but also their obligations under PCRT.
On 3 July 2019, the CIOT and ATT issued guidance to members about the Coca-Cola case. In essence, this concludes that, where the adviser had made reasonable enquiries and reached an informed decision at the time of preparing 2017/18 or earlier P11D returns then, given the present uncertainty, it is reasonable to wait until the Coca-Cola case is final before making a decision on amending earlier years’ returns.
In the meantime, until a final decision is reached in the case, advisers may consider it prudent to put clients on notice that a disclosure may be required in respect of earlier years.
Further general guidance in respect of Court/Tribunal decisions and whether corrective action is required as a result can also be found in PCRT help sheet C: Dealing with errors.
If the UT decision is upheld in the higher courts, then it does not automatically follow that the years prior to 2018/19 will need to be amended.
The decision on amendments will depend 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 being prepared. Where this line is pursued, then evidence of that prevailing practice will be required.
While we await a final decision, both the ATT and CIOT have invited members’ views on what they consider the prevailing practice for these and similar vehicles was prior to the publication of the UT decision in March 2019.
As yet, HMRC has not made any statement or issued any guidance in relation to its view of the tax treatment of these vehicles beyond the long-standing guidance in its Employment Income Manual at EIM23110.
The ATT and other professional bodies will continue to seek guidance so that tax advisers and their clients can be clear on their obligations for both future and past years.
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Helen Thornley has a focus on personal and capital taxes. Initially training as an accountant before moving to tax, she worked in practice until her appointment as a technical officer in 2017. She also has an interest in the history of tax.