Benefit In Kind: When does a van become a company car?

A company car can be a great benefit for an employee, particularly when said employee can avail of it for private use. But there’s an important question (which may sound equally philosophical) that’s not asked often enough when it comes to this particular benefit:

“When is a van no longer a van?”

As an accountant equipped with highly-qualified tax experts, we work with clients to balance the incentive of providing a benefit in kind to employees with the wider tax implications for both the business and the employee.

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Private car or company car?

It might be big, have four wheels, three seats in the front, plenty of space in the back, and maybe even a few pastry flakes from sausage rolls on the floor. Unfortunately, when it comes to HMRC those aren’t the criteria they examine for a benefit-in-kind.

It’s in the interest of both the employer and employee that the van remains a van, rather than becoming a company car, because of the impact this change would have on income tax and National Insurance Contributions (NICs).

However, defining a van is easier said than done.

When it comes to the legislation regarding benefit-in-kind, both cars and vans fall under s115 of ITEPA 2003, whereby a car is not a goods vehicle, and a van is a goods vehicle with a design (laden) weight of 3.5 tonnes or less.

If you’re wondering what a goods vehicle is, the same legislation defines it as “a vehicle of a construction primarily suited for the conveyance of goods or burden of any description”.

Coca-Cola case

A recent legal case involving Coca-Cola and their use of company vehicles highlights the difficulty in deciding whether or not a van is truly a van, or a company car.

Until the late nineties, the soft drinks giant had supplied some of its staff with the estate cars in order to provide reasonable cargo area for tools. But, as staff began to require greater volumes and weight of tools, the company opted to scrap the estate fleet and go for vans instead.

This is where the tax debate kicks in.

Since deploying vans, Coca-Cola have use three different models. The first and second generation Volkswagen Transporter, as well as the Vauxhall Vivaro.

In the Vauxhall’s case, it was manufactured in the UK as a standard van but later modified by Coca-Cola to better suit their staff’s needs. This modification included adding a row of two seats behind the driver in addition to a window adjacent to the new row.

According to the design, the new seats did not span the full width of the vehicle, thus leaving some storage space to the side.

As for the Volkswagen vans, both generations of models arrived from Germany with a second row of seats already fitted. Unlike the Vauxhall’s modification, the additional row spanned the entire width of the van, and there were windows on both sides, instead of just one side.

Crucially, the whole row of seats could be removed without tools from the Volkswagen and it was a requirement that the seats were removed during working hours. In contrast, the Vauxhall’s additionally seats could only be removed with tools.

In an attempt to settle the debate in court, two different tests of the vehicles were conducted - (i) Of a construction, and (ii) Primary suited.

Test 1

The first test aimed to establish if the vans were constructed for the transport of goods, thus considering if that meant the state of the van was to be taken at the point it left the assembly line in the factory, or at the time it was given to the employee.

In Coca-Cola’s case, the Upper Tribunal (UT) accepted the First Tier Tribunal’s (FTT’s) reasoning that what should be considered was the vehicle’s stated at the point of supplying it to the employee.

Test 2

The second test was to establish whether or not Coca-Cola’s vans were primarily suited for the transport of goods.

This proves a very fine line debate as a vehicle which is equally suitable for both the carrying of goods and passengers has no actual primary suitability and therefore can not be deemed a goods vehicle by law.

Based on the above, the UT upheld the FTT’s decision that the Volkswagen vans was in fact a car for the purposes of the benefit-in-kind rules.

In conclusion, the vehicle was equally suited to moving passengers or goods and had no primary suitability. This was in part due to the fact that the extra row of seats could be removed for goods or reinstated for passengers.

In the case of the Vauxhall, it was slightly more suited for goods given the storage to the side of its second row of seats.

Using Coca-Cola case as an example of Benefit in Kind

Now we’ve seen the fine margins between a van and company car illustrated by the above case example, how can we best apply that as a tax advisers to other situations going forward?

Well, the most important thing is to be rid of assumptions and avoid being deceived by appearances. A van may look like a van from the outside, but inside could be the defining evidence between a van and a company car.

Furthermore, as an added note to this article’s debate, under VAT regulations “a car is a vehicle which, while being adapted solely or mainly for carrying passengers and with roofed accommodation to the rear of the driver, also has a payload of under one tonne.”

Thus, any vehicle capable of carrying more than that will escape the car classification for VAT purposes regardless of its seating arrangements.

As always, if you require any further advice on the topics discussed in this article, or if you wish to speak to one of our experienced accountants about tax planning tailored to you and your business, please get in touch and we’d be happy to help you.