Coca-Cola seeks permission to appeal ‘van or car’ tax case

The future tax status of thousands of vehicles hangs in the balance after drinks giant Coca-Cola said it was hoping to lodge an appeal with the Supreme Court.

The Court of Appeal ruled in favour of HMRC last year, deciding that the use of three vehicles – two Volkswagen

Kombis and a Vauxhall Vivaro – should be treated as cars, rather than vans, for tax purposes.

The ruling increased the amount of tax due from both the employer – Coca-Cola European Partners Great Britain (CCEP) – and the employees.

If unchallenged, the Court of Appeal’s decision could set a legal precedent impacting the amount of national insurance contributions (NICs) paid by scores of fleets and the level of benefit-in-kind (BIK) tax incurred by their drivers.

A Coca-Cola European Partners spokesperson told Fleet News: “We can confirm that we have sought permission from the Supreme Court to appeal the decision made in the Court of Appeal that some commercial vans should be reclassified as cars for tax purposes.”

HMRC said it was waiting to see if leave to appeal is granted before issuing any clarification around the classification of vehicles for tax purposes.

In handing down the judgement last year, one of the three Court of Appeal judges deciding the case, Lady Justice Asplin, recognised the wider impact of their ruling, saying it was of “considerable importance” given the “large numbers” of employees supplied with Kombis or Vivaros, or vehicles which share their attributes.

VAN OR CAR?

The case was first heard in August 2017, when a First Tier Tribunal (FTT) ruled that, although two modified Kombi T5 vehicles were originally classed as vans for tax purposes, once it considered the characteristics of the two vehicles as provided to the employees in 2016 – and not just at construction – they should be classed as cars, attracting a higher tax rate.

The same court, however, ruled in favour of Coca-Cola, agreeing that a Vauxhall Vivaro provided to an employee in 2011, was “primarily suited to the conveyance of goods” and, as such, qualified for the much-reduced rate offered by company van tax.

The rules regarding classification can be found in the Income Tax (Earnings and Pensions) Act 2003 (ITEPA).

It says that every mechanically propelled road vehicle is a “car” unless it is a goods vehicle (a vehicle of a construction primarily suited for the conveyance of goods or burden of any description); a motor cycle; an invalid carriage; a vehicle of a type not commonly used as a private vehicle and unsuitable to be so used.

In explaining the Court of Appeal’s decision, Lady Asplin said the fact that a vehicle may look like a van is not conclusive.

Until 1997, Coca-Cola technicians had used estate cars but, as the amount of equipment they carried had increased, they were switched to Vivaro, Kombi 1 and Kombi 2 models.

Kombi 1 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 m and separated from the mid-section with a central partition.

Kombi 2 had three removable seats in the mid-section and was modified with a fixed partition to separate it from the 3cu m rear cargo area.

As the mid-sections were equally suitable for carrying goods and passengers in the Kombis, the FTT decided they could not be regarded as goods vehicles.

The Vivaro also featured a number of modifications including a second row of removable seats and one rear passenger window.

The FTT concluded that by a “narrow” margin, the construction of the Vivaro was primarily suited for the conveyance of goods.

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. The UT upheld the original decisions made by FTT, publishing its decision in 2019.

Further appeals were lodged by HMRC and Coca-Cola with the Court of Appeal. The drinks firm lost its appeal on the Kombis, with the Court of Appeal agreeing with the earlier decisions of the FTT and UT.

However, in a change from the original rulings, the three judges decided the Vauxhall Vivaro should now also be classed as a company car, not a van.

Judge Asplin explained that both the FTT and UT had been “swayed” by a difference in layout, between the Kombis and the Vivaro, with the latter having space for goods/tools in its mid-section.

The difference, she explained, was insufficient upon which to differentiate the Vivaro from the Kombi and to decide that the Vivaro is primarily suited for the conveyance of goods.

LOWER TAX TAKE ON VANS

Double-cab (combi) vans and double-cab pick-up vehicles have become popular in recent years thanks, in part, to the low level of tax a company van attracts.

Employees are liable for the van benefit charge if there is ‘significant’ private usage – ‘insignificant’ private usage would be considered no more than a few days’ private use.

The van benefit charge currently stands at £3,490 (2020/21) and is multiplied by the rate of income tax paid by the employee, typically either 20% or 40%, meaning a 20% taxpayer would be liable for £698 this tax year.

Company car tax, however, is determined by a sliding scale according to CO2 emissions, which would prove much more costly if it was applied to a vehicle instead of company van tax.

In 2017/18, the last year figures from HMRC are available, there were 80,000 employees paying the van benefit charge (company van tax) – a 33% increase on the 60,000 reported in 2012/13 – which was worth some £60 million to the Exchequer.

Company car tax, meanwhile, was worth £1.59 billion from just 10 times the number of employees, showing the difference in ‘value’ of how vehicles are classified to the Treasury.

Tax officials have previously tried to clarify the situation for double-cab pick-ups, with specific guidance that relies on the payload being one tonne or more to dictate whether it should be classed as a car or a van.

LACK OF CLARITY

Geoff Heron, a specialist tax consultant and director at Inspired Employer Solutions, says that he has identified weaknesses and flaws in HMRC’s case.

He has put together technical arguments which challenge HMRC’s interpretation and application of the tax legislation at Section 115 ITEPA 2003 and has also gathered additional evidence, which he believes support that the multi-purpose vehicles in dispute are of a construction that is primarily suited for the conveyance of goods and burden.

Working with several fleets, the multi-purpose vehicles in question are from Volkswagen and Mercedes-Benz, covering the Transporter, Citan and Dualiner type vehicles.

Heron, who previously worked at KPMG and prior to that was part of HMRC’s large business employer compliance teams before founding Inspired Employer Solutions, told Commercial Fleet: “My arguments specifically challenge the interpretation and application of the tax legislation and if there may have been an error in law.”

HMRC has indicated it expects to respond to the arguments he has made towards the end of May, but Heron says the current lack of clarity is proving a headache for fleets.

He explained: “What is evident from CCEP is this is clearly a complex and contentious issue, given vehicles of almost similar characteristics were viewed differently by the original First and Upper Tier Tribunals. It therefore begs the question ‘how are businesses and their professional advisers able to determine the correct position?’.”