Back in August 2019, we commented on a tax case where a van provided to employees was reclassified as a car. The case, involving Coca-Cola, shines a light on the issues associated with the provision of vehicles to employees and, more specifically, with classifying combi-vehicles.
In the Court of Appeal case, three modified crew-cab vehicles were deemed cars for tax purposes; unfortunately, cars are often taxed much more heavily.
Furthermore, the general treatment of cars is often much more complex than commercial vehicles made available as a benefit-in-kind.
Ultimately, where a car is provided, the cost to both employer and employee can be significantly larger.
Tax consequences of van vs. car
For sole traders/partners and limited companies, the Annual Investment Allowance (AIA) for the period 1 January 2019-31 December 2020 is £1million.
Where an item qualifies for the AIA, you can deduct its full value from your profits before tax. But, why does this matter?
Well, vehicles classified as vans are ‘plant and machinery’ for capital allowances purposes and are therefore eligible for the AIA. Cars, on the other hand, are not eligible for the AIA. Cars attract only part capital allowances relief based on CO2 emissions.
The uneasiness creeps in when we consider the courts interpretation of what constitutes a car versus a commercial vehicle, and the absence of any provision having been made for ‘combi’ vehicles in the legislation.
If a van should be treated as a car for benefit-in-kind purposes, the same thinking could be applied where capital allowances are concerned. If so, the relief available as a result would be significantly less.
The classification of a vehicle as a van is equally favourable when we consider the associated VAT consequences. VAT can typically be recovered on the purchase of a van, whereas this is not permitted on a car.
Know your tax position
With definitions open to interpretation, the rules surrounding the tax treatment of vehicles supplied by employers are somewhat antiquated. Without careful consideration, employers risk a potentially inconsistent tax position and unnecessary costs.
What we do not know just yet, is whether HM Revenue & Customs (HMRC) will use the outcome of this particular case to justify further challenges, or indeed whether it will issue guidance to address previously submitted P11D’s.
If you have a combi-vehicle within your fleet, consider whether this has previously been disclosed and accurately so.
When providing vehicles to employees, do your homework. Do those that look like vans externally meet the criteria to be deemed a commercial vehicle for benefit-in-kind purposes?
To discuss your circumstances in more detail with one of our expert tax advisers, contact us today.
