If modified crew-cab vehicles should now be treated as cars for benefit in kind purposes, what does this mean for input VAT and capital allowances? Helen Thornley investigates the wider tax implications.
In the Court of Appeal case of Payne, Garbett and Coca-Cola European Partners Great Britain Ltd vs HMRC reported last week, the court determined that the three modified crew-cab vehicles that Coca Cola supplied to its employees were cars and not vans.
My earlier article explained that this case only considered the definition of a van for benefit in kind purposes, but AccountingWEB readers are right to be concerned about other areas of tax where the difference in treatment between cars and vans is significant.
For capital allowance purposes, vehicles classed as vans are treated as plant and machinery, which means a van purchase is eligible for the annual investment allowance (AIA).
In contrast, the treatment of cars is more complex. The level of capital allowances depends on the vehicle’s CO2 emissions and, since cars are not eligible for the AIA, relief is given more slowly over much longer periods.
A vehicle is a car for capital allowances unless it is one of the following types (s268A CAA 2001):
For benefit in kind purposes a ‘van’ is defined as a goods vehicle, with an additional constraint based on design weight. Setting aside the weight constraint, the definition of goods vehicle for benefit in kind purposes precisely matches the wording at (b) above.
It seems likely therefore that the interpretation of the words ‘of a construction’ and ‘primarily suited’ that the court used in Coca Cola to determine that the crew-cabs in question were cars, could just as easily be applied to the definition for capital allowances.
On this basis, there is a clear risk that the Coca Cola decision will cause not only benefit in kind problems but also capital allowances issues. This means that where businesses are considering adjustments to their benefit in kind position, they should also review their capital allowances claims.
Classification of a vehicle as a van is preferable, as VAT can usually be recovered on the purchase of a van, while it is generally blocked on a car purchase.
However, there may be some room for manoeuvre as the definition of a car for VAT purposes is somewhat different.
According to VAT legislation, a car includes a vehicle which has seats behind the driver together with side windows.
This initially looks fatal for crew cabs but fortunately, there are a number of exclusions to the car definition, the most important of which is that vehicles which can carry a payload of one tonne or more are not cars for VAT purposes.
Therefore, provided that the vehicle can carry enough weight, even if there is seating behind the driver, the vehicle can be classed as a van (or at least, ‘not a car’) for VAT purposes, with all the VAT benefits that brings.
It is also possible, given the differing definitions, that some vehicles will be classified differently for VAT than for benefit in kind or capital allowances purposes.
(Incidentally, in the Coca Cola case, both the Vivaro and the Kombis were reported at the first tier tribunal as having payloads of a tonne and approximately one tonne respectively.)
If this payload quirk feels familiar for vehicles with additional seating, then you might be thinking of the special concession for double cab pick-ups. Like a crew-cab vehicle, these have seats behind the driver but, instead of an enclosed load space behind, there is a flatbed bay. Also unlike the position for crew-cab vehicles, specific HMRC guidance on these vehicles has been around for some time.
Since 2002/03, HMRC has accepted that if a double cab pick-up (but no other type of dual-purpose vehicle) meets the payload test to be classed as a van for VAT purposes, then HMRC will apply the same treatment for benefit in kind purposes as well – despite the different definition in law.
The business needs to take care that modifications (eg putting a cover over the load area at the back) don’t reduce the payload capacity by increasing the weight of the pick-up. Otherwise, the treatment set out by HMRC is clear, and in 2015 it even went as far as providing a list of vehicles showing whether each would be car or van for input tax purposes. Sadly, this list has not been updated since.
It is clear that accountants are right to be concerned about the potential wider tax implications.
For future purchases, employers need to look very closely at the nature of the vehicles they provide to employees. Owners of small companies in particular - who may be inclined to buy before consulting their accountant - should be warned not to jump at a good deal on the garage forecourt without checking the tax position first.
The real concern is for businesses that have an existing vehicle which they cannot distinguish from the decision in the Coca Cola case. If a change in historical treatment from van to car is prompted by benefit in kind considerations, businesses should also consider if there is a knock-on effect on capital allowance claims and, possibly, VAT recovery, which will all add to the costs of this case.
