Coca-Cola loses company car tax ruling in Court of Appeal

Legislation defining the tax treatment of when a vehicle is a van or a company car has been labelled outdated, unclear and not fit for purposes by tax experts.

It follows the latest instalment in a long-running court case involving HMRC and Coca-Cola around whether three commercial vehicles (two Volkswagen Kombi vehicles and one Vauxhall Vivaro) operated by the drinks firm should be classified as vans or cars for benefit-in-kind purposes.

Back in August 2017, a First Tier Tribunal (FTT) ruled that although the two modified Volkswagen Kombi T5 vehicles were originally classed as vans for tax purposes, once it considered the characteristics of the vehicles as provided to the employee – and not just at construction – they were actually cars. 

It, however, ruled the Vivaro operated by Coca-Cola was a goods vehicle as it was “primarily suited to the conveyance of goods”.

Legislation states that a van must be a goods vehicle, defined as a vehicle of a construction primarily suited for the conveyance of goods or burden.

Appeals were lodged with the Upper Tribunal (UT) by both HMRC and Coca-Cola, with HMRC disputing the decision of the FTT on the Vivaro and Coca-Cola on its Kombi ruling.

It upheld the original decisions made by FTT, publishing its decision last year.

However, after both appealed the decisions again, this time to the Court of Appeal, it has now ruled in favour of HMRC, deciding that the Vauxhall Vivaros should now also be classed as company cars, not vans, by Coca-Cola. 

The drinks firm lost its appeal on the Kombis, with the three Court of Appeal judges agreeing with the FTT and UT decisions.

Company car tax expert, Alastair Kendrick, told Fleet News: “This finding demonstrates that the legislation is out of date and not fit for purpose.” 

He says it’s surprising that HM Treasury still has not revised the legislation to take account of the advent of so-called ‘combi’ vehicles.

“It is disappointing that despite it being sometime since this case first appeared at the First Tier Tribunal that we have seen no guidance given to employers how they should treat these vehicles for P11d purpose,” Kendrick added.

John Messore, managing partner and director at Innovation, said he was “disappointed” with the court’s decision.

He explained: “The problem is that tax legislation is not that clear and simply defines a van as a vehicle constructed primarily for the conveyance of goods or burdens of any description.

“The vehicles in this case both started life as panel vans, they were most likely insured as vans, registered at DVLA as vans, held out to be vans by the manufacturer, retailer, employer, driven by staff assuming they were vans for tax purposes and indeed used as vans.

“The problem was that HMRC concluded that they would raise more taxes if they argued that the vehicles were cars, not vans. I am sure HMRC would never have challenged CCEP (Coca-Cola European Partners) if the van tax had been higher than car tax.”

Fleet manager Tom Sayers had told the tribunal in 2017 that employees were offered the choice between a panel van or a vehicle modified by a third-party contractor with rear seats, which could be used for their own private purposes.

The first Volkswagen Kombi was fitted with a removable three-person bench seat in the van’s mid-section as standard, which meant no goods could be carried there with it in place. The rear cargo section was approximately 3cu metres and separated from the mid-section with a central partition.

The second Volkswagen Kombi had three removable seats in the mid-section, and was modified with a fixed partition to separate it from the 3cu metre rear cargo area.

The Vivaro also featured a number of modifications including a second row of removable seats. With the seats removed, the load volume was virtually unchanged at 5cu metres. With them in place, this fell to around 4cu metres.

Messore said: “What counted against CCEP was the second row of seats and rear passenger windows such that there was arguably a dual purpose.

“The vehicles could have been used to carry goods, but they could equally, in the view of the Court of Appeal judges, have been used to carry people.”

If a van has a second row of seats then the Court of Appeal suggests that they have a dual purpose and the judge said that section 115 (2) of the relevant employment legislation “requires the taxpayer to demonstrate that the predominant suitability of the vehicles in question is for the conveyance of goods or burden”.

“There is no such requirement in section 115, and one could equally argue that it is up to HMRC to disprove what the taxpayer has declared, and what was registered at the DVLA,” said Messore.

There is also S115(d) – a vehicle of a type not commonly used as a private vehicle and unsuitable to be so used. “This point seems not to have been exhausted in Court but clearly a vehicle where the passengers cannot look out of both windows, because there are no windows, or at best one, is clearly not suitable to be used as a private vehicle,” he continued.

“It is also amazing that there are different definitions of a car/van for VAT purposes as opposed to Income Tax.

“One can only assume that they should be consistent and that Parliament or the legislature would want them to be similar. As the definition for VAT is less ambiguous then maybe that should have been the starting point.”

It is unclear if CCEP will appeal to the Supreme Court. “In my experience such appeals are the exception and there is never a guarantee of success in any court case and so this case could set a precedent for many other taxpayers,” explained Messore. “However, I think the matter is far from settled and another taxpayer with slightly different facts could possibly overturn this case.

“Far from providing clarity, this case has probably caused more confusion and uncertainty for taxpayers and manufacturers alike.”

HMRC has produced a list of car derived vans and vans with rear seats showing whether they are classed as a van (commercial vehicle) or a car for VAT purposes, but Messore says “this is not exhaustive, does not cover the CCEP vehicles and is already out of date”.

He continued: “I would not be surprised if HMRC now use this case as a precedent to challenge any van that has rear seats or benches, to collect more tax.”

Kendrick added: “We now need to see how HMRC will react to this decision and whether they believe this gives them the right to challenge the tax treatment of all combi vehicles supplied to employees and more importantly whether they will decide to update their guidance in respect of double-cab vans - a far greater population of drivers.”

Read more, in the August edition of Fleet News.