Following a Court of Appeal ruling many directors and employees could have to pay extra company van tax to drive what was previously considered a van but is now classed as a company car.
Original company van tax ruling
The original decision in the August 2019 tax tribunal of HM Revenue & Customs v Coca-Cola was that, for tax benefit purposes, a Volkswagen Transporter Kombi van should be treated as a car. Meanwhile, a Vauxhall Vivaro should be treated as a van.
Rather than resolving the tax treatment of panel vans with side windows, the decision made things more complex on both fronts. It was more difficult for HM Revenue & Customs (HMRC) to ensure it gave the correct guidance. Companies found it more challenging to report potential tax benefits.
The Upper Tribunal’s decision was referred to the Court of Appeal. The judgement handed down on 20 July 2020 states that both manufacturers’ vehicles should be treated as a company car rather than a van.
Unless Coca-Cola goes to the Supreme Court, this will be the end of the matter. From now on, all vans with side windows behind the driver and passenger doors must be treated as company cars. Throughout HMRC believed this was the correct approach to benefits in kind taxation.
What to do
When it comes to the implications on company van tax, the change is likely to be costly. As companies and employees have use of what is now considered a company car.
Yet, if you can clearly demonstrate the ‘company car’ is, and has always been, ‘not available for private use’, there is no need to worry:
If the vehicle is kept at a director/employee’s private address, there is a legally enforceable ban in place on the car being used for private journeys. Furthermore, detailed mileage records demonstrate that no private journeys have been made.
The vehicle is kept overnight on company premises and is only used for business journeys. Again, this position is supported by mileage records.
‘Ordinary commuting’ journeys
The treatment of ordinary commuting journeys in company cars and vans differs. You will no longer be able to claim any business journeys that fall into the category of ‘ordinary commuting’ as being non-private journeys. So, for any journeys to work classed as ordinary commuting the director/employee will be liable for the company car benefit charge.
For the tax year 2020-21, if you previously returned a ‘company van’ benefit and the vehicle now fits into the category of company car, you will incur an additional benefit in kind charge. This will be the difference between the company van benefit you paid, and the company car benefit. It must be shown on your P11D at the end of the tax year or if you payroll the benefit.
You can avoid the new/additional benefit charge if you can sell the vehicle or change the ‘available use of the vehicle’. However, doing so will not prevent the potential consequences of not declaring the ‘car benefit’ for previous years.
At this time, we think it likely that HMRC will accept any error about vehicles that now fall within the now ‘company car’ category as genuine. You would have to pay the duties, of course. But, you could argue that you took reasonable care so should not incur a penalty.
In our opinion the best way to resolve this issue is to make a voluntary disclosure to HMRC.
For advice on tax matters contact our specialist team on 01785 243276.
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