When an employer provides a vehicle which an employee can use privately, it matters whether the vehicle is a car or a van because the applicable income tax and NIC charges are very different. From both the employer and employee perspective, falling on the ‘van’ side of the line is far more beneficial.
But the definition of a van is not always clear-cut. In March, the upper tribunal (UT) upheld a decision of the first tier tribunal (FTT) that two apparently similar multipurpose vehicles provided by Coca-Cola to their employees were in one case a van and in the other case a car.
The law
For benefit-in-kind (BIK) purposes, cars and vans are defined as:
- A car is defined by what it is not – and it is not a goods vehicle.
- A van, on the other hand, isa goods vehicle with a design (laden) weight of 3.5 tonnes or less.
- A goods vehicleis then further defined as “a vehicle of a construction primarily suited for the conveyance of goods or burden of any description”.
The Coca-Cola case turned upon whether or not the three types of vehicle provided to employees were, or were not, goods vehicles.
What was provided?
Up until 1997, Coca-Cola provided its technicians with estate cars. Then as more and heavier equipment was required, they moved to offering employees a choice of a ‘traditional’ panel van or a modified vehicle. It is for the latter vehicles where issues have arisen.
During the periods in question, three different modified vehicles were provided: a first- or second-generation VW Transporter T5 Kombi (Kombi) which were largely similar, and a Vauxhall Vivaro.
The Vivaro vehicle left the assembly line as a panel van and was subsequently modified by Coca-Cola to add a second row of two seats behind the driver together with a single window. The seats did not span the full width of the vehicle, leaving some storage space to the side. These extra seats could be removed, but only with tools.
The Kombi vans (both models) were also based on a panel van but arrived from the manufacturer with a second row of seats already fitted. This row spanned the full width of the vehicle, and there were windows on both sides. However, the whole row of seats could be removed without tools and it was a requirement that the seats were removed during working hours.
Both types of vehicle were further modified with racking and storage facilities for the transport of equipment.
In determining if these vehicles were goods vehicles, the tribunals looked in detail at two elements of the test: ‘of a construction’ and ‘primarily suited’.
Of a construction
To establish whether the vehicle was “of a construction” for the conveyance of goods, it was necessary to determine if ‘construction’ meant the state of the vehicle when it left the factory assembly line or at the point following adaptations when it was supplied to the employee.
The UT accepted the FTT’s reasoning that what should be considered was the vehicle’s construction after adaptations.
The UT further accepted that removable items such as the seats in the Kombi vehicles should still be considered to be part of the construction of the vehicle. After all, many parts of a car, from the wheels upwards, can be removed.
Primary suitability
The next stage of the test was whether each vehicle was primarily suited for the conveyance of goods. This requires the taxpayer to take a step back to view the position as a whole. The FTT had already noted that this was a finely balanced decision and the UT observed that it should be slow to interfere in such multi-factorial assessment.
Where a vehicle is equally suitable for both goods and passengers, then it has no primary suitability and thus cannot be a goods vehicle.
On this basis, the UT upheld the FTT’s decision that the Kombi vehicle was a car for the purposes of the benefit-in-kind rules. The FTT was entitled to conclude that the vehicle was equally suited to moving passengers or goods and had no primary suitability. This was in part due to the fact that the extra row of seats could be removed for goods or reinstated for passengers.
The UT also accepted the FTT’s reasoning that, on a fine balance, the Vivaro was slightly more suited for goods given the storage to the side of its second row of seats and thus remained a van.
A surprising outcome
So where does that leave us? If you look at pictures of both vehicles you will probably be confused. As tax advisers, we should be concerned about whether vehicles that look like vans from the outside are actually vans, and but we should also ask clients about what their vehicles look like on the inside.
But that’s not all to consider!
Just because a vehicle is a car for BIK purposes doesn’t necessarily mean that it is a car for other taxes.
For VAT purposes, a car is a vehicle which, while being adapted solely or mainly for carrying passengers and with roofed accommodation to the rear of the driver, also has a payload of under one tonne. Any vehicle capable of carrying more than that will escape the car classification for VAT purposes regardless of its seating arrangements.[1]
[1] Produced form AccountingWeb