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A dispute around the tax classification of multi purpose vehicles being classified as either vans or cars has been rumbling on for a while, and there is now a binding decision from the Court of Appeal.

The case is Payne, Garbett and Coca-Cola European Partners Great Britain Ltd vs HMRC (NB no relation to our MD), and the broad facts were:

  • Coca-Cola provided staff with “Multi purpose vehicles” – specifically first or second generation VW Transporter T5 Kombi, and a Vauxhall Vivaro.
  • They were treated for payroll benefits as vans
  • HMRC has now assessed them as cars – this means the Class 1A Ni payable by the employer, and the Income Tax payable by the employee, are much higher
  • There was a split decision in the Tax Tribunal
  • HMRC won at the Court of Appeal

In the Court of Appeal, the issue at stake was whether they were “a vehicle of a construction primarily suited for the conveyance of goods or burden” from taxes legislation – if they were, then they were assessed as vans; if not, then they were assessed as cars.

The court held that, as there was a removable second row of seats, the vehicles were multi-purpose, hence not meeting “primarily” from the test, and hence by default, cars.

What is the impact of this?  Having been classified as a car:

  • A higher Benefit in Kind (BIK) is assessed to Income Tax for the employee
  • The employer has to pay a higher rate of Class 1A NI
  • VAT recovery on purchase may be impacted – see below re: vat
  • Business Capital Allowances are restricted

Who does this affect?

  • Employers providing vehicles for staff
  • Employees who have a vehicle provided to them by their employer
  • Sole traders and partnerships are not affected regarding Income Tax and NI (but maybe for VAT) for the Sole Trader’s / Partners’ own vehicles, but any staff vehicles would be affected

Employees include company directors / employers include any company in respect of directors.

 

Crew Cab Pick-ups – Benefit in Kind

Crew Cab pick-ups are not affected by this, despite their extra row of seats, so long as they have a payload of at least 1 tonne (after allowing a notional 45kg for any hard top):

When deciding whether double cab pick-ups count as cars or vans, HMRC will interpret the legislation that defines car and van for tax purposes in line with the definitions used for VAT purposes.

Under this measure, a double cab pick-up that has a payload of 1 tonne (1,000kg) or more is accepted as a van for benefits purposes. Payload means gross vehicle weight (or design weight) less unoccupied kerb weight.

HMRC Internal Manuals – EIM 23150

 

VAT Rules

Generally, VAT Input Tax cannot be claimed on a car purchase, but can on a van.

For VAT purposes HMRC say:

For VAT purposes the current definition is:

“Motor car” means any motor vehicle of a kind normally used on public roads which has three or more wheels and either:

a) is constructed or adapted solely or mainly for the carriage of passengers; or

b) has to the rear of the driver’s seat roofed accommodation which is fitted with side windows or which is constructed or adapted for the fitting of side windows

but they go on to say:

but does not include… …vehicles constructed to carry a payload of one tonne or more

So the multi purpose vehicles in this case should have benefited from vat recovery if they had a payload of 1 tonne or more – “should” because that wasn’t disputed, but might HMRC argue that the payload should be reduced by the notional passenger weight in borderline cases?  The argument wasn’t put forward in this case, but you could see it coming up.

The VAT aspects apply to all vehicles, including those used by Sole Traders or Business Partners.

 

Implications

The major implications of this case are:

  • Some employees / employers will see higher Income Tax and NI charges, and P11Ds will need to be revised for future years to reflect the change of practice
  • All businesses will need to review vat recovery in respect of multi purpose vehicles
  • Capital Allowance claims will need revising to reflect any re-classified vehicles