The detail was thrashed out during 2019, firstly in the First Tier Tribunal and then on appeal in the Upper Tribunal.
From there it went to the Court of Appeal who decided in HMRC’s favour in a unanimous decision handed down remotely by email to the parties representatives at 11.00 a.m. on Monday, 20 July.
It was all very simple really. The Court had to rule on whether the following vehicles were cars or vans:
• Volkswagen Transporter Kombis; and
• Vauxhall Vivaros
These vehicles had been modified, each based on a panel van design but with a second row of seats behind the driver – so called “crew-cab” vehicles. And employees could use them privately.
Why the fuss? Simply because the UK benefit code is a lot heavier in terms of tax and NIC when it comes to cars compared with scruffy vans.
Or are they scruffy these days? There are some very nice vans out there (including Kombis and Vivaros) which many employees would prefer with a relatively small tax benefit than a car and a hefty tax charge. Employers like vans too – mainly they cost less to buy, less to run and, unlike cars, there is no class 1A NIC charge. They also carry a 100% capital allowance tax write-off in the year of purchase which is very convenient. And there is full VAT recovery thrown in for good measure. The Court concluded that as both vehicles were multi-purpose and were not primarily suited to the conveyance of goods they should be regarded as cars for the purposes of the UK tax legislation. It was left to Lady Justice Asplin to deliver the judgement. Lord Justice David Richards and Lord Justice Patten signified their agreement without further comment. This decision is likely to have expensive implications for employees who enjoy any private use of these types of vehicle (or similar models) in terms of taxable benefits. It will also affect employers who will now be liable to increased class 1A NIC charges, be restricted in their capital allowance claims and have their VAT input tax reduced severely. So what will happen now? Will Coca-Cola appeal the decision to the Supreme Court? Their lawyer will be studying the Appeal Court Judgement carefully to assess the company’s chances of success. Legal action at this level is a costly business.
What will HMRC do? Armed with victory in the Court of Appeal will they draw a line in the sand and apply thee new rules from 20 July 2020?
No way! This is what we can expect:
• An insistence that employers and their advisers take the decision into account when preparing P11D computations for 2020/21 et seq.
• A further review of company vehicles to see if it can draw other crewcab vehicles into the net.
• A review of the tax treatment in earlier years.
It is the review of earlier years which could be the killer. How far back will HMRC go? There is in place a court decision which limits HMRC from going back into years where the “prevailing practice” at that time was contrary to a recent decision. It is likely that HMRC will go back and re-open the 2018/19 and 2019/20 tax years. There is a risk that they will go further. But what should employers do? Do they have a duty to notify HMRC? Some specialist advice may be appropriate, especially if the tax/NIC implications are significant.
C&H Stedman
If you think you may be affected by this, give us a call on 01442 202650 to discuss your current and future vehicle arrangements.
