The phrase ‘define your terms’ could have been invented for the benefit-in-kind rules around company cars. A recent case that ended up in the Upper Tribunal between Coca-Cola and HMRC illustrates the importance of understanding when a van is a van – or legally a car.
These definitions determine the relevant income tax and NICs payable where a vehicle is provided to an employee as a benefit-in-kind. The charges vary considerably between ‘cars’ and ‘vans’, with tax on company cars generally much higher than for vans.
In the legislation, the key concept is around use as a ‘goods vehicle’, so:
- A car is not classed as a goods vehicle.
- A van is a goods vehicle with a weight of 3.5 tonnes or less when loaded.
- A ‘goods vehicle’ is described as one “of a construction primarily suited for the conveyance of goods or burden of any description”.
The case centered on three models of vehicles provided by Coca-Cola to technicians who had previously been provided with cars. Over time the equipment they were required to use became heavier and they were offered different vehicles – either a ‘panel’ van or a modified vehicle. Two models of a VW Kombi had dual capability, where some elements could be added or removed for additional passengers or equipment. Which is where the problems started.
The employees who were given these vehicles had their PAYE coding notices adjusted by HMRC for car benefit and the employer, Coca-Cola, was assessed for Class 1A NICs. They appealed initially to the First Tier Tribunal on the grounds that the vehicles were not cars but vans. The models came under scrutiny under the definition of “construction” and whether they were “primarily suited” for the purpose used, which was ‘the conveyance of goods’.
The case hinged on the second element of primary suitability. Because the Kombi model could be used both for carrying passengers and for conveying goods, the Upper Tribunal ruled it did not have a primary suitability for only conveying goods and so could not be classed as a goods vehicle. It therefore had to classed as a car for benefit-in-kind purposes. The other model narrowly fell on the other side of the argument. Ultimately the VW models were deemed to be more like mini-buses, while the other vehicle on offer was a van.
The upshot of this complex case is that the external appearance of any vehicle is not the deciding factor for benefits-in-kind. Internal configuration and the purposes behind it will make a difference. Being aware of how legal definitions may be applied could ultimately save you and your employees some potentially painful lessons.
