Scottish businesses need to know if their van is a car to avoid higher taxes

French Duncan | 17 June 2019

Leading accountants and business advisors French Duncan LLP are advising Scottish business owners to be sure they know whether they are providing a car or a van to their employees following a recent significant ruling in favour of HMRC. The case was between Coca Cola and HMRC and centred on whether the soft drink giants’ employees had been provided with a car or a van as the tax treatment of both vehicles is considerably different.

The Upper Tribunal decided in favour of HMRC having decided that regardless of what the vehicle looks like it is its use that is important in defining whether it is regarded as a van or a car for tax purposes.

In the legislation, the key concept is around use as a ‘goods vehicle’, so:

  • A car is not classed as a goods vehicle.
  • A van is a goods vehicle with a weight of 3.5 tonnes or less when loaded.
  • A ‘goods vehicle’ is described as one “of a construction primarily suited for the conveyance of goods or burden of any description”.

Hazel Burt, Head of Personal Tax with French Duncan LLP, explained: “Most people will think this a fairly strange case for HMRC to pursue but the reality is that this can result in quite substantially different levels of taxation for the employer and the employees. If you have been supplied with a company car then that is a benefit in kind, and you will be taxed for this and your employer will pay higher National Insurance Contributions (NICs). If your company vehicle is defined as a van, then the tax and NI are lower as the employee is not regarded as having received any additional benefits from having this vehicle provided it is only used to commute and for business.”

“This case centred on the models of vehicles provided by Coca-Cola to technicians who had previously been provided with cars. As the equipment they were carrying became heavier the employees were supplied with different vehicles. The problems arose when employees were supplied with a VW Kombi which has dual capacity which can be configured to carry more equipment or more passengers.”

Hazel continued: “This rang alarm bells with HMRC who viewed this as being more like a company car and consequently adjusted the PAYE coding notices for car benefit for these employees and Coca-Cola was assessed for Class 1A NICs. The company and individuals appealed on the grounds that the vehicles were not cars but vans.”

“The Upper Tribunal viewed the definition of the vehicles derived not just from their construction but from their primary suitability. As the Kombi model could be used both for carrying passengers and for conveying goods, the Upper Tribunal ruled it did not have a primary suitability for only conveying goods and so could not be classed as a goods vehicle.”

Hazel concluded: “While this may seem an example of the taxman being unduly picky the tax difference for the company and the individual is substantial. To avoid the costs and the problems this case highlights business owners need to be aware of any duality of purpose in the vehicles they supply for their employees.”

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