By Alastair Kendrick specialist employment tax adviser
We have recently learnt that the appeal to the Upper Tax Tribunal by workers of Coco Cola in regard to the tax treatment of Kombi vehicles failed to overturn the decision of the First-tier Tribunal which was announced in August 2017.
Based on this ruling it confirms that 2 Volkswagen Kombi vehicles should be taxed for benefit in kind purposes under the company car rules rather than by reference to the more relaxed rules applying to company provided vans.
At the hearing before the First-tier Tribunal it was decided a third vehicle being a Vauxhall Vivaro could be considered a commercial vehicle for taxation purposes.
In the original judgement the Judge said ‘that because the mid-section of the vehicle could be equally suitable to carry goods and passengers for benefit in kind purposes the vehicles should be considered a car.
On appeal the Judge said ‘we reject the submission that, simply because a vehicle answers to the description of a ‘van’ as the term might be commonly understood, it does not necessarily follow it a ‘van’ or ‘goods vehicle’.
In light of the decision by the Upper Tribunal it will be interesting to see if there is an appetite by the taxpayers concerned to take the matter forward to a higher Court on appeal.
The issue that creates the difficulty for the taxpayer is the wording of the relevant legislation which reads:
S115 ITEPA 2003
Meaning of “car” and “van”
In this Chapter:-
“car” means a mechanically propelled road vehicle which is not:-
(a) a goods vehicle,
(b) a motor cycle,
(c) an invalid carriage, or
(d) a vehicle of a type not commonly used as a private vehicle and unsuitable to be so used;
“van” means a mechanically propelled road vehicle which:-
(a) is a goods vehicle, and
(b) has a design weight not exceeding 3,500 kilograms,
and which is not a motor cycle.
For the purposes of subsection (1):-
“design weight” means the weight which a vehicle is designed or adapted not to exceed when in normal use and travelling on a road laden;
“goods vehicle” means a vehicle of a construction primarily suited for the conveyance of goods or burden of any description;
“invalid carriage” has the meaning given by section 185(1) of the Road Traffic Act 1988 (c. 52);
“motor cycle” has the meaning given by section 185(1) of the Road Traffic Act 1988.
This legislation was when drafted possibly fit for purpose but now with in some instances the changing shape of some vans like Kombi vehicles there needs to be a more straightforward way of deciding whether the vehicle should be considered a car or van for benefit in kind purposes.
It should be remembered that double cab vehicles are by concession dealt with differently and since 6 April 2002 are considered a van for benefit in kind purposes based on the VAT rules. So for benefit in kind purposes a double cab van is considered a van if the payload capacity is over 1,000kg.
There have been already requests to HMRC to consider making the van rules more relevant but with other pressures these have been ignored it seems to me there are 2 possible solutions:
That the VAT rules be adopted for benefit in kind purposes. So if the payload capacity of the vehicle exceeds 1,000 kg it is considered a van and if below a car, or
The EU classification of the vehicle is adopted. So if the vehicle qualifies under category M it is considered a car or if classified under category N a van.
To me the 2nd option seems a very sensible solution because in determining the classification of the vehicle there is a significant number of tests applied so it is unlikely that HMRC could consider this to be open to abuse.
Clearly for those who are providing their employees with a Kombi vehicles they need to seek some advice on how they deal with these vehicles for benefit in kind purloined.