HANDS up if your company vehicle is a double-cab pick-up? Or a double cab van?
If your hand is down you’re fine. If it isn’t you could be facing a huge increase in your tax liabilities in the future – if the law changes relating to pick-ups.
A disagreement between Coca-Cola and HMRC over the definition of a van has led to a legal ruling that could have far reaching consequences for some company car drivers.
But the crux of the issue is a matter of vehicle use rather than its construction.
The argument stemmed from HMRC insisting that the vans Coca-Cola give to their mobile engineers are actually cars. Given that the vehicles in question are the Vauxhall Vivaro and VW T5 Kombi it may seem HMRC missed a rational conclusion. Apparently all the tools and equipment, racking systems, storage units, and such like fitted to the vans don’t count because they had a second row of seats.
The case went to tribunal and things got worse.
According to the Judge’s ruling the Vivaro with extra seats is a van while the VW with extra seats is a car. No, we couldn’t make any sense of it either and we’ve read the entire thing. Most people would struggle to tell the difference, which makes the Judge’s conclusion even more bewildering.
Luckily the Judge’s visual differentiation between a car and a van is largely besides the point.
What is not besides the point is that there are two sets of HMRC guidelines as set out for some years: one concerns the load-carrying capability of the vehicle as used and the other is whether it is solely used for business (in which case it is a van) or if it has private use, in which case it becomes classified as a car for benefit in kind purposes. Check out their guidelines.
However even if it is classified as a car for BIK purposes, check it out on our company car tax calculator, it is still a van when it comes to road tax (so there is no CO2 weighting – yet – and fortunately there is no £350 a year extra premium for years 2-6 if it costs over £40,000, as now applies to cars).
When it comes to pick-ups, HMRC has happily accepted that a double-cab pickup with a payload in excess of one tonne is, for BIK tax purposes, a van. If this was to change in the light of the latest kombi ruling, it would require new legislation and tax changes could not be retrospective. If it changed small businesses and SMEs could face increased tax bills for such company vehicles.
And if the user gets ‘free fuel’ the tax benefit on a van changes from £610 a year to £2,600 for a car in the current rates.
We’ve been highlighting the tax benefits of driving a double-cab pick-up for quite some time and have warned that you need to take financial advice if choosing a kombi for leisure use potential.
Granted our situation won’t be as awkward as anyone who finds a backdated tax bill on the doormat one morning – the ruling on the T5 Kombi relates to the 2011-12 tax year.
Who knows how many people could be affected or what effect such a change could have on the survival of many small businesses?
We know that double-cab pickups are popular with small businesses because they are flexible, versatile, and economical. Builders, plumbers, electricians, and lots of other trades use them because they are great for carrying equipment and supplies during the week and comfortable enough to double as a family car at the weekend.
We also know that lots of canny company car drivers have cottoned on to the lower tax rates and use them as regular company cars. The high-end models are just as well equipped as a regular car. This case highlight that drivers hoping to dodge the BIK tax bullet can come unstuck if they don’t read all the small print (or get an expert to do it for them).
Following the ruling HMRC may cast its eyes on situations where double-cab pickup tax could fall in line with car tax rates.
If that happens it could mean millions of pounds in extra revenue heading to the Treasury at the expense of all those businesses using double-cab pickups. Tax experts, RSM UK, are even advising caution in relation to HMRC guidelines.
Employers should be mindful when relying on HMRC guidance in determining the taxable benefit arising on a company vehicle, as this may result in unexpected tax bills and possible penalties. The wider consequence of this case could be that double cab pick-ups are brought under review.
If you are currently driving a double-cab pickup you need to keep an eye on this issue. It is possible that HMRC could review the rules and decide not to change their status. On the other hand, when has the Treasury ever been presented with a means of making more money and not taken it?
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As usual..were all in the dark about what is or isn’t a car or commercial vehicle when it comes to BIK on Kombis – why can’t the HMRC make it absolutely clear for business owners & accountants for once instead of potentially making the use of such vehicles uneconomic. Can you imaging finding said back dated tax bill from 2011, it could financially cripple some of us for adhering to HMRC ‘guidelines’ (albeit a grey and wobbly line!)
The Tribumal result only concerns double-cab in van. Back in 2005 when HMRC was new they were happy to use the same classification of car and van M1/NI for VAT and IT, but by 2008 the guidance was subtly hardening so that any van with more than a front row of seats was subject to company car tax. HMRC have been totally consistent since then as far as we can tell.