WHEN is a van not a van? When a Judge says it’s a car.
In some respects it would be preferable if that were simply the worst joke in recorded history but the fact is it could cost some companies a fair amount in backdated double-cab van tax if they had appeals hingeing on this case.
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. 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 .
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.
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.
The crux of the issue is a matter of vehicle use rather than simply its construction.
The case highlighted that there are two sets of HMRC guidelines as set out for some years: one concerns the load-carrying capability of the vehicle as used and the other how it is used.
If it is solely used for business it is a van, but if the kombi has private use it becomes classified as a car for benefit in kind purposes. Check out their guidelines.
An entry-level VW T6 Kombi classed as a car will have a P11D above £40,000, a BIK band of 35% in 2017/18 for a BIK value above £14,000 bringing an annual tax bill of £2,825, with fuel benefit tax adding £1,582 giving an annual bill of £4,407 or £367.25 per month for a 20% taxpayer.
However even if it is classified as a car for BIK purposes, check it out on our company car tax calculator, it is still a van when it comes to road tax (so there is no CO2 weighting – yet – and fortunately there is no £350 a year extra premium for years 2-6 if it costs over £40,000, as now applies to cars).
As to this ruling, 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.
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?
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?
It’s a reminder always to seek expert advice if unsure of a financial or taxation issue.