If you’re a business with a mixed fleet of vans or even a single workhorse transit, it’s important to know how you should treat your vehicles for tax benefit purposes. Unfortunately, it’s not as straightforward as you might think.
When a van is a car?
A double cab pickup that meets certain criteria is treated as a van, as is the panel type transit, but HMRC says that a panel van with side windows should now be considered a car for tax purposes.
Legal case – Coca-Cola
In August 2017 HMRC and Coca-Cola went to a tax tribunal in a bid to determine ‘as a point of principle’ whether panel vans should be treated as goods vehicles or cars. Since the tribunal decided that the VW Transporter Kombi 1 and 2 are to be treated as a car for tax benefit purposes whilst the Vauxhall Vivaro is to be regarded as a van, the outcome was inconclusive.
Upon appeal in February 2019 the Upper Tribunal upheld the decision, with the judges commenting that the tax treatment varies because the Vivaro and Kombis are ‘different vehicles made by different manufacturers’.
What does it mean for businesses?
Does this really mean that businesses are expected to treat a manufacturer’s given vehicle on its own merits? Since the Employment Income Manual (EIM23110) has not been updated to reflect the Upper Tribunal’s decision and HMRC has not issued any guidance via employer updates, things are in a state of flux. Ultimately, it is likely that legislation will be brought in to clarify the position.
The main issue is that ‘ordinary commuting’ is not treated as a personal journey in a van, whereas it is in a car. To avoid a benefit in kind tax charge businesses will need to prove that all journeys in Volkswagen Transporter Kombis and other ‘multi-purpose vehicles’ are business-related with no private use.
To tackle this issue, one option might be to keep company vehicles at the business premises. This would negate the issue of ‘ordinary commuting’ since the director or employee would have to make their own way to work.
Alternatively, company- owned vehicles could be sold at the market rate to the director/employee and they could then claim the relevant business mileage rates. This is not possible if vehicles are on contract hire and a car benefit would apply, although the director or employee using the vehicle could arrange capital contributions to reduce the car benefit tax charge.
Another solution might be to treat company vehicles as pool vehicles. Specific conditions apply to pool vehicles however and the business would have to keep accurate mileage records to show all journeys are business-related.
If your business operates vehicles that HMRC might now consider to be cars rather than vans, a benefit in kind tax charge may well apply, depending on the individual circumstances. For each vehicle, it’s best to keep a detailed log that records the exact mileage of each and every journey, and seek expert advice on the best way forward.
Remember, tax is a specialist area, so get specialist advice. Call Howards on 01785 243276 today.