This has significant income tax ramifications for companies that supply their employees with what they thought were vans but which have now actually been classified for income tax purposes cars. The provision of a car to an employee creates a benefit in kind charge for income tax with the benefit in kind charge being based on the CO2 emissions level of the vehicle. There would also be a fuel benefit charge if the company also supplies fuel for the vehicle. This victory by HMRC could have very serious ramifications for employers who have existing fleets of “vans” supplied to staff members which have now been determined as being cars and there may be retrospective benefit in kind charges levied.
There may however be wider issues for companies that have supplied this type of vehicles to staff as the company will invariably have claimed a 100% tax write down on the purchase of the “van” as vans are classified as plant and machinery for capital allowances purposes and therefore eligible for the 100% annual investment allowance. Cars on the other hand are not eligible for this allowance and they are written off for tax purposes by companies over a much longer period of time.
The rules for capital allowances however are different than for those for income tax and whether or not a vehicle is a car, or a van essentially hinges on whether the vehicle is of a “construction primarily suited for the conveyance of goods’. It was on this definition that the Revenue succeeded in the Coca Cola case to prove that the crew cab vehicles were in fact cars and therefore HMRC could just as easily succeed in a case that these vehicles were not “plant and machinery” for capital allowance purposes.
Finally, it is important to consider the VAT position in all of this. Businesses normally recover all of the input VAT when a van is purchased and other than in exceptional circumstances it is not possible to recover input VAT on the purchase of a motor car. HMRC defines a car for VAT purposes as a vehicle having seats behind the driver as well as side windows. Additionally however, if a vehicle can carry a payload of one tonne or more, it cannot be a car for VAT purposes and therefore if a crew cab vehicle is capable of carrying sufficient weight even with seating behind the driver and glass windows, the vehicle cannot be a car for VAT purposes and VAT recovery will be permitted.
To complicate matters further, double cab vehicles have become very popular. These are vehicles with additional seating behind the driver but a flatbed load carrying space instead of an enclosed space. By concession, if such a vehicle can meet the one tonne payload test and be classified as a van for VAT purposes then HMRC will not seek to tax the provision of the vehicle to an employee as a benefit in kind. It is important therefore that any modifications to double cab pick up vehicles do not reduce the vehicles ability to pass the payload test for VAT and benefit in kind.
In summary, therefore, the important decision the Coca Cola case should influence both the future purchasing decisions of companies when considering the provision of “vans” / pick-ups to employees as well as encouraging employers to review their existing fleet of vehicles provided to employees. In undertaking this review, they also need to seriously consider the capital allowance position and make amendments now rather than face retrospective interest and penalties if HMRC determine that capital allowances were incorrectly claimed in the first instance.
The advice in this column is specific to the facts surrounding the questions posed. Neither PKF-FPM nor the contributors accept any liability for any direct or indirect loss arising from any reliance placed on replies.