Coca Cola - When is a van, not a van?

Shaun Davison

Following HM Revenue & Customs (HMRC) victory in the Court of Appeal over drinks giants Coca Cola, the classification of van for tax purposes is thrown into yet more turmoil.

It is a well-established fact that the provision of a van to an employee can offer beneficial tax treatment, for both the employee and the employer, when compared to a company car.

Not only does an employee benefit from reduced income tax, as a Benefit In Kind (BIK), but the employer can also benefit from lower National Insurance bills, as well as obtain favourable capital allowance treatment and recovery of input tax for VAT.

It is important to recognise that there is no BIK tax charge when a van is not used privately by an employee. This may be contrasted with company cars, where a charge may arise from the fact that the vehicle is available for private use, even though no such use is in fact made.

In the case of Coca Cola, they provided three types of vehicles (combi-vans) to their technicians for use in their work; a Vauxhall Vivaro, a VW Kombi 1 and a VW Kombi 2.

On first impressions, the vehicles would appear to be vans. A person would likely point them out as a van if one was to drive by in the street, they were most likely required to be insured and registered as vans, along with being marketed as vans by the manufacturer and retailers.

As such, Coca Cola treated the vehicles as vans, which did not give rise to the BIK rules applicable to cars on the employees, nor to a Class 1 National Insurance charge on the company.

However, HMRC disagreed with Coca Cola’s decision saying that the vehicles were not in fact ‘vans’ but we actually ‘cars’ for tax purposes and therefore subject to the BIK tax charge and the associated employer’s National Insurance 

After previously fighting their case against HMRC in the tribunal courts - HMRC v Coca Cola European Partners Great Britain Ltd [2019], Coca Cola had taken their case to the Court of Appeal.

However, the Court’s judgement did not go in the drink company’s favour and it was upheld that all the vehicles identified were in fact cars for BIK purposes.

So why did the courts decide the vehicles should be classified as cars and not vans?

The legislative definition of a van is “a vehicle of a construction primarily suited for the conveyance of goods or burden of any description”.

The Court of Appeal explained that it is not the use of the vehicle which is important; but ultimately the initial construction of the vehicle and whether the construction is primarily suited for the conveyance of goods.

The Court specified that ‘primarily suited’ means that the vehicle is constructed first and foremost as a goods vehicle. Since the vehicles in question could be used for a multi-purpose they did not meet the ‘primarily suitable’ condition for a van and were therefore considered to be cars.

So what next? It is unsure whether Coca Cola will take the case to the Supreme Court as there is no guarantee they will be triumphant there and HMRC, who have not yet made any changes to their guidance, are remaining tight lipped over their next move.

It is likely HMRC will use this case as precedent to challenge employers who provide multi-purpose vans to their employees, therefore, it is important for companies to take professional advice to ensure they select the correct van for employees.

The tax ramifications for selecting the wrong vehicle can be huge and leave employers with a significant tax bill.

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