Accountants based in Nottingham, UK

Is it a car - or is it a van?

In terms of tax, providing employees with a vehicle which fits within the definition of a van, rather than a car, can be very worthwhile. This is equally relevant to company directors, who are also treated as company employees. A recent tax case sheds interesting light on how cars and vans are defined for income tax purposes.

Advantages

If an employee is given an employer-owned van, where they are given exclusive use of the vehicle, and it is available for private use, there is a taxable benefit. In 2018/19, this is a flat rate charge of £3,350 for vans that emit CO2.

This contrasts favourably with company car rules. The taxable benefit on a company car is generally based on a range of 13% - 37% of the manufacturer’s list price of the car, including accessories, and will depend on the carbon dioxide emissions, and whether diesel or petrol driven.

Vans also have advantages over cars in terms of fuel. Where there is a chargeable benefit for an employer-provided van, and the employer provides fuel for the employee’s private use, a van fuel benefit charge arises: £633 for 2018/19. As regards National Insurance, provision of either a car or van as a benefit in kind can give rise to an employer charge to Class 1A at 13.8% of the assessable benefit.

Definition

Given the tax at stake, it is not surprising that HMRC’s guidance on what constitutes a van runs to many pages. And to add to the complexity, what holds good for Vehicle Excise Duty and VAT, doesn’t necessarily hold good for income tax. The key point is whether the vehicle is a goods vehicle – defined as ‘a vehicle of a construction primarily suited for the conveyance of goods or burden of any description.’

HMRC have special guidance on off-road vehicles and double cab pick-ups. Double cab pick-ups are, broadly, pick-ups with a second row of seats, capable of seating about four passengers plus driver, with four doors capable of being opened independently, and uncovered pick-up area behind the passenger cab. HMRC say it is not possible ‘to come up with a single categorisation for all double cab pick-ups. Nor is it possible to give a blanket ruling on any particular makes … So each case will depend on the facts and the exact specification …’ Generally, HMRC define a double cab pick-up as a vehicle with a payload of one tonne (1,000kg) or more, and there is small print about how to define payload and how the vehicle hard top fits into the calculations.

Caution

All this was put to the test in a recent tax tribunal case, where the Vauxhall Vivaro and Volkswagen Transporter Kombi I and 2 came under the spotlight with a degree of intensity befitting a television car show. Each vehicle had been modified.

The judge considered maximum load that could be carried, braking systems, loading areas, modifications like extra seating and storage racks, provision of seat belts, climate controls, power sockets and sound-proofing, not to mention the role of the bulkhead in enabling goods to be carried in the rear cargo section and ensuring protection of passengers in the mid-section. He found that the Vivaro was a goods vehicle, but the VW Kombi was multi-purpose, and should be classed as a car. The judge suggested that vehicle modifications did not need to amount to a ‘fundamental alteration in structure’ in terms of ‘core framework or chassis or body.’ The definition of ‘construction’ could be wider than simply the ‘original construction’ of the vehicle and could include subsequent modifications.

Tax tribunals do not produce binding legal precedent. But this case serves as a reminder that company vans can have tax advantages, and that in this complex area, professional advice is always advisable.