Van or car? Should your van be classed as a car for income tax and national insurance purposes?

van car

In the recent Coca Cola “van” case, the Court of Appeal has found in favour of HMRC that certain types of modified crew cab vehicles should be classed as ‘cars’ rather than ‘vans’ for income tax and national insurance purposes.

The benefits of classing a vehicle as a ‘van’ rather than a ‘car’

There are a number of benefits when a vehicle is classed as a ‘van’ rather than a ‘car’:-

  • The current benefit it kind charge for a ‘van’ is £3,490, which would be reduced to £2,792, if it is classed as a zero emissions vehicle. However, if the vehicle is treated as a ‘car’, the benefit in kind charge could be considerably higher as it is normally calculated based upon the car list price graduated according to the level of CO2 emissions
  • If the vehicle is regarded as a ‘car’ this could have a knock on negative impact on the level of Class 1A national insurance that a business has to pay
  • If private fuel is paid for by the business, the car fuel benefit in kind figure is likely to be considerably higher than the fixed van fuel charge of £666 where CO2 emissions come into play
  • Vans are potentially eligible for the annual investment allowance whereas cars are not
  • Capital allowances relief for cars is likely to be spread over a longer period
  • Input tax can be claimed in part or in full on the purchase of a vehicle classed as a ‘van’ for VAT purposes.  However, the recovery is generally blocked if a car is purchased where private use maybe involved

What is a ‘van’?

According to tax legislation a van is:

  • A goods vehicle that has a design weight not exceeding 3,500 kilograms and is not a motor cycle
  • A ‘goods’ vehicle is defined as one of a construction primarily suited for the conveyance of goods or burden of any description. 

What did the Court of Appeal rule in the Coca Cola ‘van’ case?

The following important points came out of the Court of Appeal’s ruling in the Coca Cola ‘van’ case:-

  • When deciding whether a vehicle is a ‘van’ or a ‘car’ it is not the original design that counts but rather the construction/adaptation of the vehicle when it is made available to the employee
  • Although the look of the vehicle is a factor, it is not a significant one
  • The fact that a vehicle is used for private purposes is, in itself, irrelevant in deciding whether or not the vehicle is a ‘van’ for income tax and national insurance purposes
  • The Court placed great emphasis on what is meant by ‘primarily’ suited for the conveyance of goods. The Court felt that a multipurpose vehicle would be deemed to be a ‘car’ if the construction of the vehicle, when looking at it as a whole, was only ‘marginally’ in favour of it being a goods vehicle than a car. ‘Primarily’ means more than that  
  • The three vehicles in question were originally constructed as panel vans but were later modified:-
    • One vehicle was modified to incorporate a second row of seats which could be removed (using tools) and a window added at the side of the seats
    • The other two vehicles already had a second row of seats, removable (without using tools), with windows either side of them, behind the driver and front passenger seat. Racking was required to be installed by the driver when the vehicle was used on business
    • All three vehicles were modified to provide added protection for those seated in the second row of seats to prevent loose items from entering their area if the vehicle had to brake suddenly

Next steps, if you have been declaring the ‘van’ benefit

If your vehicles are clear cut panel vans or fit the double-cab HMRC concession you can continue to declare the ‘van’ benefit. However, if your vehicles have been adapted from the original construction to include items such as additional seats and side windows, you should consider whether they are still ‘primarily suited’ for the conveyance of goods? 

The legislation can be complex. If you do have any questions in connection with whether your vehicle should be classed as either a ‘car’ or ‘van’ for income and national insurance purposes, please get in touch with the tax team at DRG Chartered Accountants. We would be delighted to hear from you.

Additional useful information

  • A combi-vehicle with a payload of 1 tonne or more is not a ‘car’ for VAT purposes
  • Double cab pickups (but no other type of dual purpose vehicle), HMRC accept that where the vehicle meets the ‘van’ payload test for VAT purposes, they will apply the same treatment for benefit in kind purposes
  • HMRC has produced a list of combi vehicles which classifies, for VAT purposes, whether a vehicle is a ‘car’ or a ‘van’. Please note that this list has not been updated since May 2015.

For further information
Gov.uk website: Expenses and benefits: company vans and fuel
HMRC internal manual: “Car benefit: car or van – A summary”
Gov.uk website: HM Revenue and Customs: car derived vans and combi-vans

DISCLAIMER: This information is for guidance only, and professional advice should be obtained before acting on any information contained herein. We will not accept any responsibility for loss to any person as a result of action taken or refrained from in consequence of the contents of this publication.  

 
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Donald Reid Group
18a King Street, Maidenhead, Berkshire SL6 1EF | T: 01628 760 000 | E: info@donaldreid.co.uk
Francis House, 11 Francis Street, London SW1P 1DE | T: 020 7108 6322 | E: info@donaldreid.co.uk

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