A new definition of a car for tax purposes?
The tax treatment of cars and vans differs significantly – for example vans provided to employees for private use only result in a flat annual P11D benefit of £3,230 (currently) whereas car benefits are calculated on a proportion of the list price depending on vehicle emissions.
Additionally, expenditure by businesses on vans can be included within their annual investment allowance (‘AIA’) claim for capital allowance purposes, which provides first year allowances on up to £200,000 of capital expenditure in a 12 month period, whereas cars are excluded from an AIA claim. Furthermore, car expenditure may have to be allocated to a capital allowances pool with a lower writing down allowance of 8% p.a. on a reducing balance basis (as opposed to 18%) if the emissions are above a threshold amount (currently 130g/km).
Therefore, the distinction between the two can be crucial, and in most cases it will be clear which category the vehicle will fall into.
The recent case of Noel Payne, Christopher Garbett, Coca-Cola European Partners Great Britain Limited v HMRC examined the distinction and the decision could have a significant impact on the classification of certain types of vehicles for tax purposes.
Facts of the case
The case looked at whether each of three different types of vehicle supplied by Coca Cola to its employees were goods vehicles (i.e. vans). Under the tax legislation concerned a goods vehicle is defined as “a vehicle of a construction primarily suited for the conveyance of goods or burden of any description”.
The three appeals concerned:
- 2016/17 income tax on the use of a VW Transporter T5 Kombi van (second generation) Kombi 2);
- 2016/17 income tax on the use of a VW Transporter T5 Kombi van (second generation) used by (Kombi 2); and
- Class 1A NIC payable by Coca Cola for vans and fuel available to employees in 2011/12. The vans were a VW Kombi Transporter T5 (first generation) (Kombi1) and a Vauxhall Vivaro (Vivaro).
In 1997 Coca-Cola decided to equip their technicians with more powerful vans to carry significantly more, and heavier, equipment than before. They had started using the Vivaro as well as the Kombi 1 and 2 with more powerful engines.
Coca-Cola offered its employees the choice between a panel van (i.e. with no seats in the mid-section of the vehicle) and a vehicle as modified by a third party specialist contractor to include a second row of removable seats. Employees would opt for the van as modified by the third party in order to use seats for their own private purposes.
Unsurprisingly, the taxpayers’ expert witness believed that the:
- three vehicles in question were designed and constructed primarily for the conveyance of goods rather than passengers; and
- the adaptations and manufacturer supplied options (the fitment of seats and windows in the second row), although allowing passengers to be carried, did not compromise the original design functions of the three vehicles which were primarily constructed for the conveyance of goods.
The Vivaro had a dual capability of carrying passengers and cargo. However, on a narrow balance, the Tribunal held that construction of the Vivaro was primarily suited to the conveyance of goods because:
- Its engine and transmission were mounted transversely and the driver’s position was set high, each in order to maximise the load area and load volume.
- The mechanical components (fuel tank, exhaust, rear suspension) were packaged to allow a large flat load space floor and the Vivaro’s height was designed to maximise the load area and load volume.
- The design and dimensions of the sliding door and the rear door facilitated loading.
All these features seemed to be more characteristic of a vehicle the construction of which was designed to carry goods. This appeal was allowed.
By contrast the Tribunal concluded that neither version of the Kombi vans were constructed primarily to be suitable for the conveyance of goods. They were both multi-purpose vehicles, intended to enable workmen to be taken to work and for goods to be carried. The mid seat section was consistent with such a multi-purpose role. The appeals in connection with these vehicles were dismissed.
Each vehicle where there is doubt regarding its classification will continue to need to be considered on its own merits, based on which purpose is considered to be its primary one, i.e. carrying vehicles or carrying passengers.
However, whilst factors such as the payload of the vehicle and what the vehicle is categorised as by the DVLA can be indicative of classification, this case proves that for direct tax purposes the vehicle is only considered on the primary purpose of its construction (and adaptations), and that there will be cases where that classification differs from the usual indicators of whether the vehicle is a van or a car.
Certain commentators have labelled this case as “the end” of the double cap pickup. Certainly it will be interesting to see whether HMRC, as a result of this decision, elect to update their internal manuals where they cover the meaning of a car for tax purposes.
For example, page 23510 of their capital allowances manual which covers that topic still says the following: “Do not treat the following vehicles as cars….Double cab pick-ups with a payload of one tonne or more”. However, if the principles applied in this case were applied to many double cab pick-ups it is possible that many would fall to be considered as primarily constructed for the conveyance of passengers (i.e. car).
For further information or advice, please contact:
t: 01245 254221
t: 01245 254250
This is intended as a summary and overview of the tax situation and does not constitute financial advice and no action should be taken without first seeking professional advice specific to your circumstances.