What is the background?
Employers providing vans to their employees occupy a favourable position in terms of tax, due to; exemptions they have not being available to company car drivers; and a relatively low taxable benefit compared with a car of the same value.
A recent tax tribunal case on company vans (the “Coca-Cola case”) has raised the spotlight on the provision of vans to employees, which is leading to an increased focus by HMRC on this benefit in kind.
What is the issue?
There are a number of tax advantages for company van drivers which are not enjoyed by company car drivers. The van benefit charge is relatively low in comparison to a car, with some extra incentives for low-emission vans. In addition, there are two significant tax exemptions for van drivers, for those who either use their vehicle for travelling to and from work, or who use a “pool” van.
One of the effects of these advantages has led to the growth in more popular “lifestyle” vehicles such as double cab pickups, which are formally classed as commercial vehicles (and currently usually taxed as vans) but which have many characteristics of a car.
The definition of a van for tax purposes was considered in the Tax Tribunal in a case involving van drivers engaged by Coca-Cola, where it was held that commercial vehicles which had a dual use (i.e., where the vehicle was designed for both the transport of goods and people) was a car. The recategorisation of the vehicle as a car effectively negates a lot of the advantages held by the vehicle as a van.
What do employers need to consider?
Tax exemptions
There are two main tax exemptions to avoid the benefit in kind charge, where there is insignificant private use, or where there is restricted private use. There are stringent conditions for the circumstances when either exemption applies, with the onus of proof to obtain the exemptions lying with the employer.
Although the exemptions are very similar, they rely on the employer being able to prove, with documentary evidence, that either the private use of the van is either very rare, or private use is formally prohibited (outside of using the vehicle for travelling from home to work). In addition, the van has to be provided for business use, and the employer must demonstrate that the vehicle has been used for business journeys.
To claim “pool” van status, the employer needs to satisfy a number of conditions such as the van being made available to more than one employee, and not to the exclusion of others, it is not kept overnight at an employee’s home, and any private use of the vehicle is incidental to the business use.
Definition of van
The Coca-Cola case referred to above makes it more likely that HMRC will challenge the provision of vehicles currently classed as vans (due to them being classed as commercial vehicles). In particular, employers may face a challenge where the ratio of the seating area to the non-seating area is close to 50:50.
Although we have not seen any changes to HMRC guidance on this area since the case was decided, the principles of that case could easily be used to determine other vehicles classification.
It is vital that employers consider the following:
1. Are the vans we currently provide to employees subject to challenge as being a car?
2. Can we demonstrate that the tax exemptions we are claiming can be justified with any documents or records? and
3. Do we continue to meet the conditions for pool vans?
How can UNW help?
Our employment tax specialists have unrivalled expertise in reviewing employers van fleets and can offer the following assistance:
1. A review to determine the risk of any vans being challenged as being a car, including a qualification of the tax risks;
2. Understanding the private and business use of vans to assess whether the tax exemptions claimed either still apply, or can be claimed in the future;
3. Assessing whether any pool vans used by employees should continue to enjoy this status.
4. Providing comments and improvements to strengthen any current exemptions.
If you would like more information about this, or any other employment tax related matters, please do not hesitate to get in touch with Lee Muter, Employment Taxes Partner, at leemuter@unw.co.uk or Paul Tucker, Employment Taxes Senior Manager, at paultucker@unw.co.uk.
