If income tax is a consideration when choosing a company vehicle, it could be worth your while to choose a company van rather than a car. This applies to vehicles for company directors, who are also treated as company employees. A recent tax case highlights the differences in how cars and vans are defined for tax purposes.
If an employee is given exclusive access to an employer-owned van, and it is available for private use, there is a taxable benefit. In 2018/19, for vans that emit CO2, this is a flat rate charge of £3,350.
In contrast, the taxable benefit on a company car is generally between 13% to 37% of the manufacturer’s list price of the car including accessories. The precise rate depends whether the vehicle is petrol or diesel, and the level of CO2 emissions.
There are additional benefits to choosing a van in terms of fuel. Where there is a chargeable benefit for an employer-provided van, if the employer provides fuel for the private use by the employee, a van fuel benefit charge arises. This amounts to £633 for 2018/19.
Finally, in regard to National Insurance, providing either a car or van as a benefit in kind can result in an employer charge to Class 1A at 13.8% of the assessable benefit.
The definition of a van
Given the tax at stake, it is no surprise that the guidance from HMRC on what constitutes a van is complex. To further complicate matters, what holds good for Vehicle Excise Duty and VAT, doesn’t necessarily hold good for income tax. The key point to consider is whether the vehicle fits the description of a goods vehicle: ‘a vehicle of a construction primarily suited for the conveyance of goods or burden of any description’.
HMRC have issued guidance for off-road vehicles and double cab pick-ups. Double cab pick-ups are, broadly, pick-ups with a second row of seats. They seat around four passengers plus driver, have four doors that can be opened independently, and an uncovered pick-up area behind the passenger cab. Generally, a double cab pick-up will have a payload of one tonne (1,000kg) or more and there are guidelines on how to define payload, and how the vehicle hard top fits into the calculations.
HMRC say it is not possible ‘to come up with a single categorisation for all double cab pick-ups. Nor is it possible to give a blanket ruling on any particular make … So each case will depend on the facts and the exact specification …’
A recent tax case – modified vehicles
In a recent tax tribunal case, three vehicle models (the Vauxhall Vivaro and Volkswagen Transporter Kombi I and 2) came under intense scrutiny, largely because each vehicle had been modified.
The judge considered the maximum load that could be carried, braking systems, loading areas, modifications like extra seating and storage racks, provision of seat belts, climate controls, power sockets and sound-proofing, and also the role of the bulkhead in enabling goods to be carried in the rear cargo section and ensuring protection of passengers in the mid-section. He determined that the Vivaro was a goods vehicle, but the VW Kombi was multi-purpose, and should be classed as a car. The judge suggested that vehicle modifications did not need to amount to a ‘fundamental alteration in structure’ in terms of ‘core framework or chassis or body’. The definition of ‘construction’ could be wider than simply the ‘original construction’ of the vehicle and could include subsequent modifications.
Tax tribunals do not result in binding legal precedent. However, this case is a useful reminder that company vans can have tax advantages and, being such a complex area, it is wise to seek professional advice.
For information of users: This material is published for the information of clients. It provides only an overview of the regulations in force at the date of publication, and no action should be taken without consulting the detailed legislation or seeking professional advice. Therefore no responsibility for loss occasioned by any person acting or refraining from action as a result of the material can be accepted by the authors or the firm.