Rob Sellers FCCA
- Partner, Audit and Assurance
- +44 (0)330 124 1399
- Email Rob[email protected]
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Defining when a van is a van and a car is a car is for most in the construction industry a pretty straight forward exercise. But not so for HMRC. Get it wrong and you could find yourself facing an unwelcome tax bill, says Rob Sellers.
The tax rules around company cars are complex but reasonably well understood. The tax position on company vans is hopelessly unclear and made no easier by a recent tax tribunal case. And for trade reliant on vans, a small mistake might lead to a hefty tax bill for both the drivers and their employer.
The case – involving Coca Cola, two VW Kombi vans and a Vauxhall Vivaro – makes fascinating if frustrating reading. And the decision reached by the tax tribunal adds little way of clarity.
Coca Cola made its appearance in the First Tier Tax Tribunal in 2017 when HMRC argued that the VW Kombi and the Vauxhall Vivaro were in fact cars and should be taxed as company cars. The First Tier Tribunal decided that the Kombi’s were cars and that only the Vivaro was a van.
Both Coca Cola and HMRC unhappy with the decision appealed, with the Upper Tribunal upholding the original decision last year.
Both vans look almost identical, with removable bench seating and a bulkhead that separates the passengers from the goods area. The difference relates to the mid-sections of the van which whilst both can carry passengers, the Vivaro was considered primarily for the carrying of goods and cargo whereas the VW Kombi was designed in such a way to carry passengers.
The Tax Tribunal said that the Kombi was ‘essentially a minibus designed to carry passengers’ and was therefore not primarily suitable for the carrying of goods. And in an attempt to provide clarity, added that both were equally suitable for carrying goods and passengers and that is why it does not constitute a goods vehicle.
The decision matters to developers and contractors.
Take the example of a van costing £30,000 and with 160g/km emissions.
When treated as a van, the cost to the individual paying 40% tax with private mileage would be £1,634 a year. When treated as a car this increases to £8,007. The National Insurance costs to the company as a van would be just £564 a year, but as a car increase to £2,762 a year.
And to add further complication, there are equally confusing rules for reclaiming VAT for cars and vans. For VAT purposes, a van is a motor vehicle and therefore VAT is not reclaimable if it were designed to be fitted with or includes additional seats to carry passengers. However, where the payload is more than 1,000kg and where the dedicated load area is of a size compared to the passenger area to make the carriage of goods the predominant use of the vehicle, VAT can be reclaimed on the purchase.
Our advice to developers and contractors looking at adding a van to their fleet is to first stop and consider what the primary purpose of the vehicle was designed for. HMRC is unlikely to accept your van as a van if it is to carry both people and goods. It is easier to opt for a double cab pick-up with a payload in excess of one tonne as HMRC has accepted that a pick up is in fact a van.
So to conclude: a car is never a pick-up or a van, a pick-up is a van, and a van is a car unless it is a van.
If you have any concerns or questions regarding your vehicles and classification, contact your usual Kreston Reeves adviser here or on +44 (0)330 124 1399.
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