HMRC is remaining tight-lipped for the time being about the future tax status of thousands of vehicles, after winning a case in the Court of Appeal.

The case involved drinks giant Coca-Cola and the use of three vehicles – two Volkswagen Kombis and a Vauxhall Vivaro – and whether they should be treated as cars or vans for tax purposes.

Three judges have now decided the vehicles should all have been classified as ‘cars’, increasing the amount of tax due from both the employer – Coca-Cola European Partners Great Britain – and the employees.

It is unclear whether Coca-Cola intends to appeal the decision to the Supreme Court, after failing to respond to enquiries from Commercial Fleet. But, if unchallenged, the ruling could set a legal precedent impacting the amount of National Insurance Contributions (NICs) paid by fleets and the level of benefit-in-kind (BIK) tax incurred by drivers.

In handing down the judgement last month, one of the three Court of Appeal judges deciding the case, Lady Justice Asplin, recognised the wider impact of their ruling.

“The question is of considerable importance,” she explained. “Large numbers of employees are 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.

Lady Asplin said: “The fact that a vehicle may look like a van is not conclusive.

“Nor is it the fact that some vehicles bear company logos. The presence of a logo does not go to the question of whether a vehicle is of a construction primarily suited for the conveyance of goods.”

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 last year.

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 it was not enough for the Vivaro to “slip by the post”.

“Primarily means something more than a suitability which is first in the list by a whisker. It means ‘first’ and ‘foremost’. It cannot express very narrow margins,” she said.

She added 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 is insufficient upon which to differentiate the Vivaro from the Kombi and to decide that the Vivaro is primarily suited for the conveyance of goods.”

HMRC told Commercial Fleet that, while it was “pleased” the court agreed with its interpretation of the tax rules, it was “considering the decision carefully”, pending the possibility of an appeal, before commenting further.

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.

The Ford Ranger Raptor, which meets the rules for flat-rate van VED (N1 type-approval) but does not meet the payload standard, is considered a car for BIK purposes.

HMRC told Commercial Fleet that the decision by the Court of Appeal has no bearing on the treatment for tax and benefit purposes of double-cab pick-ups. The Coca-Cola case centred around the classification of combi vans.

Tax expert John Messore, managing partner and director at Innovation, was disappointed with the court’s decision. He explained: “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.”

Messore believes what counted against Coca-Cola was the second row of seats and rear passenger window so 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,” he said.

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

“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.”

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