Is it a car or a van for benefit in kind purposes?

Following the announcement in the 2024 Autum Budget and the decision in the “Coca Cola case’ (outlined below), HMRC is changing its policy on how Double-Cab Pick-Ups (“DCPUs”) are to be treated for benefit in kind purposes from 6 April 2025.  HMRC will no longer just look at the payload of the vehicle and whether it exceeds one tonne but will instead assess and classify the vehicle depending on its primary purpose at the point it is made available to the employee, by using a two-part test outlined in their guidance at EIM23115.

Change from 6 April 2025 – key points

• As a result of this policy change, it is expected that the majority of DCPUs with a payload of one tonne or more will no longer be treated as goods vehicles. Instead, it will be treated as cars for benefit in kind (“BIK”) purposes, because these vehicles typically suited for convey passengers and goods with no dominant suitability (up to 5 April 2025, HMRC will accept that such vehicles can be treated as a van for BIK purposes).
• Going forward, HMRC will classify DCPU’s based upon the assessment of the vehicle at the point it is made available to the employees, to identify the construction and the original manufactured form of the vehicle and to consider whether the construction is primarily suited for the conveyance of goods or burden of any description or not. HMRC will also consider any permanent/substantial modifications made to the vehicle to see if it has altered the vehicle’s construction.
• Transitional rules will apply where employers have purchased, leased or have ordered DCPUs before 6 April 2025 and will continue to treat them as vans until the earlier of the vehicle being disposed, expiry of the lease or 6 April 2029.
• The policy change is likely to result in the employees and employers paying more in tax and NIC, respectively, where the vehicles are made available for private use.
• The policy change by HMRC will not affect the VAT position.

Previous article – overview

It is important to note that HMRC’s instruction manuals are based on their interpretation of the legislation and to make sure your returns are filed correctly at HMRC the precedent set by the CoA in this case is likely to carry more weight.

Broadly, a company car is defined under s115(1) ITEPA 2003 as “a mechanically propelled road vehicle that is not a goods vehicle (a vehicle primarily suited for conveyance of goods or burden of any description”).  The taxable benefit in kind charge is generally levied where the company car is made available to an employee for private use, based on the car’s list price and its CO2 emission rating.

A company van is defined under s115 ITEPA 2003 as “a mechanically propelled road vehicle that is a goods vehicle (a vehicle of construction primarily suited for conveyance of goods or burden of any description) and has a design weight not exceeding 3,500kg”.  A taxable benefit in kind charge generally arises when a company van is made available to an employee, and the employee uses the van for ‘insignificant’ private use.  The charge is based on a standard scale charge (£4,020 for 2024/25) and can be cheaper than a car benefit in kind, depending on the cars’ list price and CO2 emission rating.

HMRC guidance at EIM23100 specifically states “note that the test is of construction, not use”.  Furthermore, the guidance at EIM23100 previously stated that “actual use of a particular vehicle is irrelevant; the statutory test is a test of construction, not use”.  This was tested in a recent case of Payne & Ors v HMRC [2020] EWCA Civ 889 (“the Coca Cola case”):

Background

• Coca-Cola provided a VW Kombi 1, a Kombi 2 and a Vauxhall Vivaro for its technicians which had been modified. The Vivaro had seats and a window added. Kombi 1 had partitions and Kombi 2 had removable racking.  Both Kombis already had removable seating as standard.
• Both had a dual capability of carrying passengers and sufficient payload for carrying cargo.
• HMRC had adjusted the employee’s PAYE coding notices for car benefit and assessed the employer for Class 1A NICs.
• The employees and employer appealed to the First Tier Tribunal (FTT) on the basis that all the vehicles were vans.

The FTT concluded, and on appeal by HMRC the Upper Tribunal (UT) agreed, that:

• The Kombis were essentially minibuses, designed to carry people and therefore cannot be regarded as vans. With modification, they became equally suitable for carrying goods and passengers.
• The Vivaro was a van as it was more characteristic of a vehicle the construction of which was designed to carry goods.

HMRC appealed the decision on the Vivaro and the taxpayers appealed regarding the VW Kombis.

In summary, the Court of Appeal found that the VW Kombis and Vauxhall Vivaro were cars and not vans for the purpose of assessing employee car benefits, based on the following reasons:

• The vehicles must be looked at in their modified form, not as they were when they came off the production line.
• As a result, the FTT and UT had not erred in law in treating the Kombis as cars and the Court of Appeal dismissed the taxpayers’ appeals.
• The lower courts had erred in law regarding the Vivaro. They found “on a narrow balance” that it was primarily suited to the conveyance of goods, which was not enough, as primarily means “first and foremost”. Multi-purpose vehicles such as this may have no primary suitability at all.
• Having weighed up all the facts the Court found that both types of vehicles were multi-purpose, and neither was primarily suited to the conveyance of goods, meaning neither could be a van. There were no significant differences to set the Vivaro apart from the Kombis. HMRC’s appeal was allowed.

The interesting point about the case and the decision arrived at by the Court of Appeal, especially where it said the vehicles must be looked at in their modified form, not as they were when they came off the production line, would seem to go completely against what HMRC’s guidance states at EIM23100 and EIM23110, which as mentioned earlier is their interpretation of the legislation.  Therefore, completing P11Ds based on the CoA decision should be more compliant (and ironically possibly provide HMRC with more tax/NI revenue!).