When is a van not a van? (UK)

A recent First Tier Tax Tribunal decision upholding HM Revenue & Customs’ claim that certain vehicles were actually cars for tax purposes has left many employees facing hefty retrospective tax bills on company cars that they – and pretty well everyone else – have always considered to be vans.

The tribunal delivered its decision in relation to 1st and 2nd generation models of the Volkeswagen Kombi van (known respectively as Kombi 1 and Kombi 2) as a result of HMRC’s decision to argue that certain types of vans with a 2nd row of seats behind the driver’s row should be classed as cars for tax purposes.

HMRC’s motives for the challenge are clear: the tax benefits arising for HM Treasury from company cars are significantly greater than those from company vans. HMRC has pursued the challenge despite such vehicles being classed by DVLA and insurance companies as being ‘designed and constructed for the carriage of goods’.

Given its DVLA classification, a Kombi is restricted to 60mph in 70mph zones. Company Kombi drivers whose luck was right out could therefore find themselves being billed for back tax by a government department that regards the Kombi as a car, then getting a speeding ticket from another government department that classes it is a van.

In addition to the two Kombi models, ‘Payne & Garret & Coca-Cola European Partners GB Ltd v HMRC Commissioners, Tax Tribunal, 30 August’) also considered the Vauxhall Vivaro van in three joined appeals that raised the same issue of –

whether three different types of vehicle supplied by Coco Cola to its employees is a goods vehicle for the purpose of section 115(2) Income Tax (Earnings and Pensions) Act 203 – which defines a good vehicle as “a vehicle of a construction primarily suited for

the conveyance of goods or burden of any description…”.

First Tier appears to have classed the Vivaro as a van primarily because of the more significant cargo space available in the middle section, even with seats removed, as compared with the Kombi.

While it supported HMRC in relation to the Kombi, the salient factors in its decision contradicted elements of HMRC guidance on what is a van.

The guidance states

  • the test is applied at construction
  • a vehicle designed and marketed as a multipurpose vehicle is unlikely to be a van
  • a vehicle with side windows behind the driver and passenger doors, is unlikely to be a van

… while the Tribunal considered

  • it was necessary to look at all the characteristics of the entire vehicle as provided to the employee, not just at construction
  • the side windows were irrelevant
  • being multi-purpose per se does not rule out the van being constructed primarily for the purpose of carrying goods

In its summary of the case, RSM, the global provider of audit, tax and consulting services, points out the urgent need for new guidance as “to what HMRC deems to be a car and what is a van. In the meantime, with HMRC guidance contradicting the Tribunal findings, the retrospective collection of tax on these vehicles seems wholly unreasonable.”

The guidance appears to have been taken off the HMRC website, so perhaps the process of developing new guidance has already begun.

15th September 2017

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