Why knowing the difference between a car and a van is important for tax purposes

29th May 2019

The recent case of HMRC v Coca-Cola European Partners Great Britain Ltd and others [2019] UKUT 90 has highlighted the need to be extra cautious when buying a vehicle for work and not to assume that all motors that look like vans are classified as vans for tax purposes.

The distinction between what is a car and what is a van is relevant not only to whether the employee is subject to income tax on a benefit in kind but it also impacts on the employer because of the possible liability to Class 1A NIC.  If you are an employer with a large fleet of vehicles, this could be a serious liability. The distinction is also relevant to VAT and the entitlement to reclaim input tax on the cost of the vehicle. This is further challenging in that the definition of a van for the purposes of VAT is not the same as that for income tax.

The relevant part of the ITEPA 2003 s 115 definition of a van is that it is ‘a vehicle of a construction primarily suited for the conveyance of goods or burden of any description’.

Back in August 2017, a first-tier tribunal (FTT) considered whether three commercial vehicles (two Volkswagen Kombi vehicles and one Vauxhall Vivaro) operated by Coca-Cola should be classified as vans or cars for benefit-in-kind (BIK) purposes. All had a dual capability of carrying passengers and sufficient payload for carrying cargo.

The First-tier Tribunal (FTT) said that the key question was not whether a vehicle would be regarded as a van in ordinary parlance or by reference to the commonly understood meaning of ‘van’ but whether the primary suitability of the vehicle was for the conveyance of goods or burden. The FTT decided that if the vehicle is of a construction marginally more suitable for the conveyance of goods than it is for any other use, its primary suitability is for conveying goods.

While the outward appearance of the three vehicles in this case seemed similar, after taking account of the full characteristics of each, the two Volkswagen Kombi vehicles were found to be cars whilst the Vauxhall Vivaro was found to be a van. On appeal, the upper tribunal upheld the FTT decision.

This decision does not necessarily clarify the distinction but it does give a clear health warning to both employers and employees currently using or considering the use of these combi-type vehicles – that even if primarily used for the transportation of goods, if there is additional seating, even if removable, it is likely that HMRC will classify them as company cars and therefore liable to income tax and Class 1A National Insurance.