WHEN is a van not a van? When a Judge says so.
In some respects it would be preferable if that were simply the worst joke in recorded history. In other respects it really is the worst joke in recorded history.
A joke that could cost small businesses and SMEs millions of pounds in additional double-cab van tax.
Without going into too much detail, Coca-Cola had a disagreement with HMRC about whether or not the vans they supplied to their vending machine engineers were classed as goods vehicles or passenger vehicles.
The case revolved around the tax status of the Vauxhall Vivaro and VW Transporter T5 Kombi (yes, part of this case goes back to tax year 2011-12). In this case both models had a second row of seats, and both had been modified with additional racking, floor covering, bulkheads, and other bits and pieces added to the vehicles. Much like many other businesses do.
Most people would find it relatively simple to look at a vehicle and decide if it were a car or a van, but not HMRC. It seems common sense is alien to HMRC, so the case ended up at tribunal and the Judge’s ruling has now been handed down.
So the taxation interpretation and tax payment adjustments due in this one case could be backdated five years – for everyone.
There were lots of legal arguments about how the vehicles are constructed. Engine configuration, braking systems, and weight limits, are discussed in the ruling. It also looks at modifications; how and when they were done; whether the second row of seats can be removed and how much space they take up; whether there are windows in the sides.
After all the arguments were presented the Judge ruled that the Vivaro is primarily a goods vehicle, the Kombi is not. Most people, including us, would struggle to tell the difference – along the lines of: if it looks like a van, it is a van.
How this conclusion was reached is frankly baffling. We’re not going to break it down for you here because it would take far too long. Our recommendation is that you read the judgement for yourself and seek expert advice if you are in any way unsure of how it might affect your business.
The important fact is that the Judge’s ruling actually contradicts HMRC guidance so now we are even less certain than before.
As far as we can gather from the ruling, for a van to guarantee being classed as such for tax purposes it should only have seating in the front and have a large load area. As soon as a second row of seats is added it enters the murky world of legal interpretation.
Official HMRC guidance defines a van as a vehicle of a construction primarily suited for the conveyance of goods or burden.
The guidelines state that:
- the test is applied at construction
- a vehicle designed and marketed as a multi purpose vehicle is unlikely to be a van
- a vehicle with side windows behind the driver and passenger doors, is unlikely to be a van, particularly if fitted, or capable of being fitted, with additional seating behind the driver’s row irrespective of whether fitted in the vehicle at the time.
That would be fine if it wasn’t for the small matter of the ruling contradicting these guidelines. In reviewing the evidence the Judge has taken a broader view and looked at each vehicle individually. As tax experts RSM highlight,
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 per se does not rule out the van being constructed primarily for the purpose of carrying goods. In the case of the Vivaro classified as a van, the over-riding factor seemed to be the significant cargo space available in the middle section, even with the middle seats in place, compared with the VW Kombi.
It seems that whether or not a van is a van can depend entirely on personal interpretation. That’s not a good way to determine your tax liabilities. Try telling HMRC you have a personal interpretation of the tax code and see how far you get.
Obviously the VW Kombi and Vauxhall Vivaro have been classified but what about all those other double-cab alternatives?
Double-cab vans are massively popular among small businesses because they are multi-purpose vehicles that can be easily modified to suit lots of different trades. And for builders they are useful for getting lots of staff to work without the need for two vans. If this ruling sticks then that could all change.
Does it mean that all those double-cab vans are no longer vans? How much room does the second row of seats need to take up before your van turns into a car? How are small businesses and SMEs supposed to fulfil their tax obligations if they don’t know what they are driving? If HMRC don’t know the correct rate of double-cab van tax how do you fill out your tax return properly?
More importantly there could be huge financial implications for many small businesses.
Who knows how many builders, plumbers, electricians, and the like are suddenly going to be faced with a massive tax bill because their van is now longer a van? How many small businesses could fold under the sudden financial strain of higher taxation?
How many SMEs are suddenly going to find themselves facing significantly increased national insurance contributions because their employees are suddenly driving cars instead of vans? This ruling could cause havoc when calculating their BIK tax payments.
How many businesses might fall foul of the lack of definitive guidance and wind up facing backdated bills and penalties for unpaid double-cab van tax?
How many more vehicles currently classed as vans could be affected by this ruling?
We wish we could tell you how changes to double-cab van tax rates will affect you but at this stage we really have no idea. HMRC guidelines can be confusing at the best of times so it’s most likely the government will have to clarify this issue very soon.
The sooner the better given the farcical nature of the current situation.