Tax & admin · 13 September 2017

Employers face unexpected tax bills as confusion surrounds HMRC vehicle classification

Parked vans
The taxable benefit for businesses on vans is lower than on cars

Businesses could be at risk from unexpected tax bills and possible HMRC penalties, after recent legislation challenged the view of some small business owners over whether certain company vehicles should be classified as vans or as cars.

Each vehicle type has a different taxable benefit, with the benefit for businesses on cars is a lot higher than on vans, and HMRC’s rules determine that a van must be a “goods” vehicle – that is, a vehicle of a construction mainly suited “for the conveyance of goods or burden”.

HMRC guidelines stipulate that a vehicle that’s designed and marked as “multipurpose” when it’s made is unlikely to be a van. A vehicle with side windows, behind the driver and passenger doors, is also unlikely to be a van, especially if it’s capable of being fitted with additional seating behind the driver, irrespective of whether fitted in the vehicle when it’s built.

However, in a recent employer tribunal case, three models of vehicle (including two Volkswagen Kombi models and the Vauxhall Vivaro) were the subject of discrepancy, and the outcome of the case contradicted aspects of HMRC’s guidelines.

The VW Kombis were found to be cars and the Vivaro was found to be a van, although most people would struggle to see the difference, the tribunal found, and it had to look at all the characteristics of the entire vehicle when it was given to the employee, not just as it was built.

In the case of the VW Kombi models, the tribunal considered the vehicle’s side windows to be irrelevant, and that being multi-purpose per se does not rule out the vehicle being built primarily to carry goods.

In the case of the Vauxhall Vivaro, classified as a van, the over-riding factor was the significant cargo space available in the middle section, even with the middle seats in place, compared with the VW Kombi.

Commenting on the case, employer solutions partner at tax experts RSM, Graham Farquhar, said that the tribunal provided some useful new principles but that overall the view of HMRC’s definition of what which vehicles classify as vans or cars, remains unclear. He said: “We would welcome, as a matter of urgency, new guidance as to what HMRC deems to be a car and what is a van.

“Employers should be mindful when relying on HMRC guidance in determining the taxable benefit arising on a company vehicle, as this may result in unexpected tax bills and possible penalties. The wider consequence of this case could be that double cab pick-ups are brought under review.”

HMRC has previously accepted that a double cab pickup, with a payload of one tonne or more, (excluding its hard top) is a van for tax benefit purposes.

However, the government tax office has challenged other types of vans with a second row of seats to be cars, despite being classified by the DVLA and insurance companies as designed and constructed for carrying goods.

Small businesses should prepare for new HMRC online security measure

Sign up to our newsletter to get the latest from Business Advice.


 
TAGS:

ABOUT THE EXPERT

Fred Heritage is deputy editor at Business Advice. He has a BA in politics and international relations from the University of Kent and an MA in international conflict from Kings College London. He previously worked as a reporter at Global Trade Review magazine.

Q&A

If you’ve found the article above useful, but have a more detailed and bespoke question, then please feel free to submit a query to our expert. We at Business Advice will get in contact with them on your behalf and arrange for a personalised response. These questions and answers will then be collated on the site for any other readers who have similar queries.

Ask a question

On the up