The Court of Appeal has made its final ruling on Payne, Garbett and Coca-Cola European Partners Great Britain Ltd v HMRC – a case that forms the peak of a protracted debate over the difference between cars and vans.
The Court has concluded that the three types of modified crew-cab vehicles in question are cars rather than vans for tax benefit purposes, closing the book on the case in question, but not on the long-term repercussions of the ruling.
For employers in the UK the outcome of this case could have wide-ranging impact, as there are thousands of these multi-purpose vehicles currently being used by employees in the UK.
The Case
In the case of Coca-Cola v HMRC, it was brought into question whether three commercial vehicles owned by Coca-Cola should be classified as vans or cars for benefit-in-kind purposes.
The vehicles – a series 1 VW Kombi, a series 2 VW Kombi and a Vauxhall Vivaro – are based on a panel van design and are marketed for commercial use, and had been used by Coca-Cola as such. However, as these vehicles also feature additional seating and windows throughout, and each had been modified during manufacture, HMRC argued that they were cars.
In August 2017, the First Tier Tribunal (FTT) ruled that the two Volkswagen Combis, although originally classed as vans for tax purposes, were actually cars. The Vivaro was ruled to be a van, however, as it was “primarily suited to the conveyance of goods”.
After this ruling, appeals were lodged with the Upper Tribunal (UT) by both the plaintiff and respondent, with Coca-Cola disputing the Kombi decision, and HMRC the decision on the Vivaro.
The UT upheld the original decisions made at the FTT, wherein both parties appealed again.
In this final ruling, the Court of Appeal (CA) has ruled in favour of HMRC, and decreed that all three vehicles are multi-purpose vehicles, meaning that they should be taxed as cars.
Reactions
Many finance experts are disappointed with the decision, noting that HMRC has still not revised its outdated legislation in order to take into account the advent of ‘combi’ vehicles.
Speaking to Fleet News, company car tax expert Alastair Kendrick said: “This finding demonstrates that the legislation is out of date and not fit for purpose.
“It is disappointing that despite it being sometime since this case first appeared at the First Tier Tribunal that we have seen no guidance given to employers how they should treat these vehicles for P11D purposes.
“We now need to see how HMRC will react to this decision and whether they believe this gives them the right to challenge the tax treatment of all combi vehicles supplied to employees and more importantly whether they will decide to update their guidance in respect of double-cab vans – a far greater population of drivers.”
In looking at the Court of Appeal decision, it is important to be cognizant of HMRC’s guidance at EIM23110, which clearly states that for a vehicle to be classified as a van it must be primarily suited to the conveyance of goods.
Furthermore, the guidance stipulates that vehicles with side windows, and those that can be fitted with additional seating, are unlikely to meet the definition of a van. This in mind, the CA ruling is very much in line with existing legislation.
What Does This Mean For Employers?
The Court of Appeal decision is binding, as it is unlikely that this case will be deemed important enough for appeal to the Supreme Court. This means that employers are in a position where they must take stock of the vehicles that they own for company purposes and ensure that they take these changes into account when preparing P11D forms for 2020/21.
Some employers may wish to amend their procedures for choosing new multi-purpose vehicles for commercial use, to avoid confusion or difficulty in the future.
Tax Rates For Vans
HMRC offers a number of different tax options for vehicles, depending on how it is used by the business.
Vans used solely for work purposes do not have any P11D implications, and this applies to vehicles used for ‘insignificant private use’, such as one-off trips such as a doctor appointment on the way to work or picking up lunch between jobs.
HMRC views this kind of use as having no apparent ‘Benefit-in-Kind’, unlike company cars which are often used for substantially more than just commuting and work purposes.
Company car tax rates are much more complicated, as they depend on four main criteria. These include:
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Carbon dioxide (CO2) emissions
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P11D value
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Whether you pay Basic, Higher or Additional Rate tax
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How much the car is used and whether the employee makes a contribution or not.
Gov.uk has extensive information on working out company car tax here.
Company Van Tax Rates
For the 2020/21 tax year, the BiK tax rate for light commercial vehicles is £3,430. This includes vans, pick-ups and any other commercial vehicle that qualifies as a van for tax reasons.
Businesses may be able to get lower tax rates in a few special circumstances, including:
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If an employee is unable to use the van for more than 30 days consecutively
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If an employee pays you so that they can use the van privately
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If more than one employee is using the van (businesses may be able to divide the BiK rate between the number of employees using the van, or if the vehicle is a company vehicle with no specified guardian then there is no tax to be levied)
To work out the amount of company van tax you are likely to pay, you need to multiply your personal rate of tax, times the fixed BiK value. For a taxpayer that pays the 20% tax rate, this would work out as 20% x £3,430, which works out to £686 annually, or £57.17 per month.
Need More Help?
HMRC has created a list of car derived vans and vans with additional seating that shows whether they are classes as a commercial vehicle or a car for VAT purposes. If you have any doubt about your own company vehicles, this can help.
The friendly team at An Accounting Gem are also here to help with any questions you may have on this matter. You can get in touch on 01473 744 700 or email us at contactus@aag-accountants.co.uk to find out more. We are here to help you every step of the way.
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