There has been a clear line between the tax treatment of company cars and vans for some years. However, most recently HM Revenue and Customs (HMRC) is taking a fresh look at whether certain types of vans should be classed as cars for taxation purposes. It’s still a live issue and, once decided, the impact is likely to be significant for those affected.
The tax on company cars is based on a percentage dependent on the CO2 emissions of the vehicle applied to the maker’s list price plus factory fitted extras. Neither the cost of the car to the company, nor the amount of private mileage undertaken by the employee are relevant. If fuel for private motoring is also provided then the percentage is applied to a fixed figure, currently £24,100. The resultant benefit can prove expensive to the individual.
How much tax do I have to pay?
Commercial vehicles do not attract such a heavy tax treatment, and how the vehicle is used does affect the amount of tax payable.
A van used for business journeys, such as travelling to and from work or between appointments, with incidental private mileage, is exempt.
If the vehicle is used privately, the taxable benefit is a flat rate currently of £3,430 (£2,058 if no CO2 emissions produced). If fuel is provided, the benefit is only £655 per annum.
Furthermore, the employer can recover any VAT on purchase, which is generally not the case with cars. In both instances, a Class1a NIC liability arises at 13.8% of the benefit, payable by the employer.
What is considered as a commercial vehicle?
In the past, a vehicle capable of carrying one tonne or more was generally accepted as being a commercial vehicle. This is still the case with double cab pickups but not vans. The abundance of vehicles with extra rows of seats and side windows in the rear have caused HMRC to reassess their view.
In a recent tax case involving a well-known soft drinks manufacturer, HMRC challenged the tax treatment of a fleet of VW Kombi vans. These were all capable of carrying the requisite load but HMRC contended that the vehicles should fall within the car benefit rules due to modifications made on manufacture.
The Upper Tribunal has found in favour of HMRC on the basis that the vehicles were equally suitable for carrying goods and/or passengers and therefore they must be cars, having no primary purpose to their construction. On the other hand, the Tribunal accepted that a Vauxhall Vivaro remained a commercial vehicle because it retained a significant load capacity, despite having two rows of seats. The company has appealed the Tribunal’s finding and we await a further ruling.
Peter Webb, Partner