We receive many queries about whether a vehicle is a car or a van, the answer to which can have a massive implication for both income tax and VAT purposes.
A business can recover its input VAT on the purchase of a van, but not on a car. Government policy prevents such a reclaim on a car, and also restricts VAT recovery on car lease costs. In addition, there are differing rules for VAT on the private fuel used and on the vehicle’s resale.
For income tax purposes a benefit in kind charge on a van is still determined on a flat rate, whereas for cars it is based on a combination of CO2 output and list price. Van drivers are also treated more favourably than car drivers when it comes to the fuel benefit charge for private mileage, even going so far as to define commuting in a van as business travel.
So defining the borderline between vans and cars is crucial in deciding what vehicle to purchase and determining the likely tax charge.
This is easy when looking at an Audi A4 or a Ford Transit, but with many vehicles it is not so clear.
For both VAT and income tax purposes, HM Revenue & Customs (HMRC) rely on the definition of a vehicle included in the Value Added Tax (Cars) Order 1992: A motor car is:
Thus for a vehicle to be classed as a van it must have a purpose other than for carrying passengers. It should therefore have a significant load bay to carry goods such that the carrying of passengers can no longer be the main purpose. A car boot will not count.
And that load bay must not have windows either, so the cavernous rear of Lovejoy’s Volvo Estate, with the seats permanently folded down and habitually filled to the roof-lining with antiques, would not be enough to make it a van, even if the rear seats were removed.
In short, it is not the actual use of the vehicle, but the purpose for which it was constructed and sold that matters.
There are exceptions.
The following are specifically not motor-cars, so must be vans:
So far, so good. But then we have the “double-cab pickup” dodge. This is a further exception where the vehicle is constructed to carry a payload of one tonne or more. This exception allows certain vehicles with two rows of seats, and with side windows beside the second row, to still be classed as vans if the load carrying capacity is sufficient. Thus a double-cab pick-up may be classed as a van, as may certain other van-derived vehicles, referred to by HMRC as combination or combi vans.
For a double cab-pick up, what matters is the payload which needs to be one tonne or more. That will be defined in the manufacturer’s specification, but careless modification can wreck the planning.
A double-cab’s load bay is not very secure, so many owners will add an after-market cover, either level with the load bay sides or full cab-height. The weight of that accessory is part of the manufacturer’s rated payload, but detracts from the potential commercial payload, so if the rated payload is 1.1 tonnes, and the load bay cover weighs 0.2 tonnes, the effective commercial payload is reduced to 0.9 tonnes and the vehicle is now a motor car, with all that that implies for tax purposes.
There can be uncertainty over cars that are adapted, pre- or post-sale (sometimes by the manufacturer), for use as small vans which HMRC call car-derived vans. The question then can be whether the load bay is sufficient such that the primary purpose is the carriage of goods. The ease with which it could be adapted back to being clearly a car could also preclude it being classed as a van.
HMRC have very helpfully produced a list of car-derived vans and combi-vans and their status. If the vehicle you are looking to acquire is on this list as a van then you are home and dry. But if it is shown as a car, then look for another one as the case would not be worth arguing.
The fact that a van can hold one tonne may not be enough if that load bay is shared with the rear passengers, as safety issues may render its use for carrying goods impractical. But in contrast, if the dedicated load area is such that the carriage of goods is sufficient to make that its main purpose, a one tonne payload may not be needed. This last concession is in a HMRC Business Brief, but I, for one, have never actually seen it given.
In practice, the presence of a bulkhead between the goods and passenger areas would be a major help in any argument. And one should always work on the basis that a one tonne payload is the minimum where there are windows or seats behind the driver.
Then all previous practice has been undermined by a recent Tribunal case (the Coca-Cola case) in which the Upper Tribunal confirmed the First Tier Tribunal’s 2017 finding that where a combi-van is equally suitable for the carriage of goods and passengers it is not primarily suitable for the carriage of goods, and so is a car, not a van. There are indications that HMRC are reviewing their previous interpretations, starting with VW Transporters but it may not end there. Double-cab pick-ups may be next – can you honestly say that the current crop of luxury pick-ups are more suitable for carriage of goods than passengers? Be aware of the risk before you sign the purchase contract.
At the time of writing (1 May 2019), we still await new guidance on this, and so anyone buying a vehicle whose classification is not clear cut should be aware that there may be changes in the HMRC view and that those changes may be backdated.
As a final note, it should not be forgotten that to be able to reclaim VAT on any asset it must be used in the business. The mere fact that a double-cab pick-up (or any other sort of vehicle) qualifies as a van does not justify input VAT recovery if all it is used for is commuting to and from work and never carries goods or tools.
If the Managing Director’s Mitsubishi Monster Truck has a load bay as pristine as the day it was bought, a VAT Inspector may well be seeking to make an adjustment to the VAT return.
As ever, if you want any further advice, please contact us