The Court of Appeal has ruled that three types of modified crew-cab vehicles are cars rather than vans for tax benefit purposes.
This is the latest episode in a long running saga over the difference between cars and vans, which has now been resolved in: Payne, Garbett and Coca-Cola European Partners Great Britain Ltd v HMRC.
With potentially thousands of these multi-purpose vehicles used by employees in the UK, the case has potentially significant – and expensive – consequences for employers and employees alike.
The Coca-Cola case
We recently wrote about the Coca-Cola case, where the upper tribunal (UT) upheld an earlier first tier tribunal (FTT) decision on the car versus van question.
To recap, Coca-Cola provided employees with three types of modified vehicle, each based on a panel van design but with a second row of seats behind the driver – a so called ‘crew-cab’ vehicle. Employees could use them privately, which meant the benefit in kind position had to be considered. The vehicles in question were a first or second generation VW Transporter T5 Kombi and a Vauxhall Vivaro.
Coca-Cola argued that all the vehicles were vans, HMRC said they were all cars, with the former being more beneficial for tax purposes. However, in a somewhat surprising decision, the FTT determined that because the Kombis were multi-purpose, they couldn’t be considered vans and therefore fell by default into the category of car.
On the other hand, the FTT held that the Vivaro could be considered a van on fairly narrow grounds – essentially that the second row of seats didn’t span the width of the vehicle as they did in the Kombi. That extra load space in the middle of the vehicle therefore made it, just, a van. The UT agreed.
The Court of Appeal (CA) has now determined that all three are multi-purpose vehicles, capable of carrying both goods and people and that none of them are ‘van-like’ enough. For benefit-in-kind purposes, they need to be taxed as cars.
The definition of a van according to the relevant benefit in kind legislation requires the vehicle to be a ‘goods vehicle’. In turn, a goods vehicle is defined as ‘a vehicle of a construction primarily suited for the conveyance of goods or burden’. If it doesn’t meet this definition, then a vehicle will generally default to being taxable as a car.
Since the vehicles had been modified, the wording ‘of a construction’ was relevant, with the CA agreeing with the lower courts that this should be interpreted as the condition of the vehicle after modifications and in the state that it was provided to the employee.
Where the CA disagreed with the lower courts was in how to interpret ‘primarily suited’. In the CA’s view primarily should be taken as meaning ‘first and foremost’ – so clearly more suitable for goods, not just more suitable on a fine margin.
In the CA’s view, the difference between the two vehicles was not sufficient to differentiate them and, since both were multi-purpose and equally capable of carrying goods or people, neither was primarily suited to the carrying of goods. As a result, both vehicles failed to qualify as vans for benefit in kind purposes.
The result from the CA is binding, although we don’t know if an appeal to the Supreme Court can be made. Thus employers and their advisers must take the decision into account when preparing P11D computations for 2020/21 onwards. This may mean that a further review of company vehicles is needed to confirm the correct treatment for any similar crew-cab vehicles made available to employees.
It is also important that staff involved in purchasing future company vehicles are aware of the decision and the tax implications of providing similar crew-cab vehicles where private use is permitted.
The other issue is what should employers do about earlier years now that we have a binding decision. Where an employer has treated similar vehicles as vans to date, is it now necessary to report additional tax as due, because the vehicles are cars?
PCRT to the rescue
Some guidance to agents on when to take corrective action following a court decision is available in help sheet C of the Professional Conduct in Relation to Taxation (PCRT). Whether an amendment is now required depends very much on whether or not the treatment of vehicles like the VW Kombi as a van and not a car could be considered the prevailing practice at the time that earlier years’ returns were prepared.
When considering that question for the most recent 2018/19 and 2019/20 tax years, agents and employers should have been aware of the UT decision (although also aware it was being appealed) and have taken this into account when preparing returns for these years.
For 2017/18 returns, the initial FTT decision was not binding at that stage and, given that it could have been overturned on appeal, there is an argument that this single case was not enough to justify a change of position at that point.
It should be noted that the CA decision is very much in line with HMRC’s guidance at EIM23110. This has said for some time that, for a vehicle to be a van, it must be primarily suited for carrying goods and that vehicles which have side windows behind the driver and which can be fitted with additional seating are unlikely to meet the definition of a van.
Accordingly, where a vehicle has not been reported in line with both that guidance and the (now) final decision, there is potentially the risk of HMRC enquiry and employers affected by the decision should consider taking specialist advice on the next steps.