Company vehicles cause tax confusion

Francesca Hutcheson, of Dyke Yaxley Chartered Accountants in Shrewsbury and Telford, said the tax and National Insurance consequences were different depending on whether the vehicle was classified as a van or a car for tax purposes.

“The difference in costs between the two categories is significant, but for both the employer and the employee, a van is far more beneficial.

“As the UK’s appetite for larger SUV-style vehicles increases though, it has become more difficult to distinguish between a car and a van, and this has led to HM Revenue and Customs taking a closer look into many cases.”

Francesca said a recent court case had ruled it was no longer enough merely to say that a vehicle met the legal definition of a van when it came off the production line.

“The court said that any modifications made to the vehicle may alter its classification for tax purposes – in this case, both vehicles involved appeared to be vans, but had undergone alterations both during production and after.

“Seats had been fitted in one vehicle during production, and the driver had fitted racking so that it could be used for business purposes – the other had been modified after production to include an extra row of seats, a window, and a bulkhead behind the seats.

“The Court of Appeal ruled that the modifications meant the ‘vans’ were actually multi-purpose vehicles, capable of transporting goods or passengers, and were now not ‘primarily suited’ to the carrying of goods as required by tax law. This meant that both vehicles should be taxed as cars for benefit in kind calculations.

“It’s clear that employers must take into account any modifications made to company vehicles when it comes to categorising them for tax purposes.

“For instance, if you’ve added extra seats, there is now a real risk that the vehicle may no longer be classed as a van, and both the employer and employee could face significantly higher tax and National Insurance costs.

“Unsurprisingly, these complicated principles have created a great deal of confusion for businesses – if you’re in any doubt, it’s important to seek professional advice to make sure you’re complying with the rules.”