Chris Thorpe considers what might happen when giving employees a company van rather than a car.
Company cars are a nice perk to have with a job, but they are expensive. The income tax they attract for the availability of private use is calculated using a percentage based on the carbon dioxide (CO2) emissions and then applied to the car’s list price. Those percentages go up every year and diesel cars attract an extra special surcharge! Fuel is also taxed on the same percentages and applied to a fixed rate (i.e. £24,600 in 2021/22). Only cars with zero CO2 emissions and the most efficient hybrids attract zero tax.
How about a van?
Clearly, it’s a policy to promote the use of cleaner cars and discourage use of traditional fossil fuel ones; and there’s not much anyone can do about it. Unless…what if the vehicle in question is not a car? Whether a vehicle is a car or a van (or ‘goods vehicle’) could make a huge difference. Income tax on the private use of a van is not based on a list price and CO2 percentage; instead, it is based on a fixed figure (£3,500 in 2020/21). Even the private fuel benefit is a fixed amount (£669 in 2020/21). But what is a van?
VAT has its own rules for determining the status of a vehicle; generally, if it has a payload of 1 tonne or more, then it is a van. HMRC even produce a helpful list of van models and confirm how they regard those vehicles. However, for income tax it is not so clear cut. The income tax legislation defines a van as a vehicle whose construction is primarily suited for carrying goods. But how do the Courts interpret that?
Is it a van?
The Court of Appeal recently considered a case concerning VW Kombis 1 and 2, and Vauxhall Vivaros. In the case of Payne & Ors v Revenue And Customs [2020] EWCA Civ 889, the Court of Appeal upheld HMRC’s arguments that all those vans were actually cars for benefit-in-kind purposes.
The First-tier and Upper Tribunals had held that the Vauxhall was a van, but the VWs were cars, as they had rear windows and removeable rear seats; therefore the primary purposes was not that of conveying goods – that was merely a purpose. However, the Court of Appeal allowed HMRC’s cross- appeal that the Vauxhall also fell into that category and dismissed the taxpayers’ appeals, holding that the Vauxhall was too similar to the VWs to be categorised as a van.
A crucial point the Court made was that you don’t just look at the vehicle’s construction as per the statute, you look at what other retro modifications have been made; actual use is irrelevant, as is the description given by the manufacturer or dealer. The presence of windows behind the driver and ability to fit passenger seats was lethal to a claim that a vehicle is a van.
What about double-cab pickups? Land Rover 110s or Mitsubishi L200s have seats behind the driver and windows and doors for passengers, so surely using the logic from the Coca Cola case those vehicles would be cars too? Thankfully not. For such vehicles, the income tax definition follows that for VAT, so if its payload is 1 tonne or more, it is a van. Also, the weight of any hard tops added onto the cargo area is disregarded for that calculation. However, this rule only applies to double cab pickups.
Practical tip:
In most cases, it will be obvious when a car is a car. However, clearly a van is not always a van; and even if it is according to VAT rules, it doesn’t automatically follow that it will be for income tax purposes. It could be a costly mistake assuming that it does.
