One of the most frequently asked tax questions from clients relates to cars, and a recent case has highlighted a peculiarity that further demonstrates the complexities that can arise.
The case concerned vans that were used by employees and that were modified, with a second row of seats installed behind the driver. This modification lead to a conclusion that the van had been altered to the extent that its primary purpose was no longer the conveyance of goods and it should be re-classified instead as a car. To qualify as a van, the vehicle must be more suitable for goods than for people.
This decision only applies for benefit in kind purposes and should not affect the classification of the vehicle (as a van) for VAT purposes.
This case shows how it pays to carefully check the status of your vehicle, in case what appears to be multi-purpose vehicle, and a van, may actually be classified for tax purposes as a car.
We have taken the opportunity of summarising a few general tax points about cars below.
Most employers and employees are aware of the additional costs of providing company cars and the tax implications they create. However, for many employees the lure of having a company car means that this remains a very popular option. There are some circumstances where it can be possible to offer employees car benefits that are exempt from tax.
These include cars available for business journeys only. To avoid reporting for car benefit or car fuel benefit, the car should only be available to staff during working hours for employment related duties or to travel to a temporary workplace. The business must also clearly tell their employees not to use the vehicle for private journeys and check that they do not.
Cars adapted for an employee with a disability. These cars are exempt if the only private use is for journeys between home and work and for travelto work-related training.
Fuel paid for by employees. The fuel benefit is removed when an employee pays for all their private fuel use or if the employerpays and the employee reimburses the amount (during the tax year).
‘Pool’ cars. Employers are not required to pay or report on ‘pool’ cars. These are cars that are shared byemployees for business purposes only and normally kept on your premises. Employers must ensurethe ‘pool’ car rules are properly adhered to.
Privately owned cars. Employers do not have to pay anything on cars that directors or employees own privately.