By Rosy Hughes, Head of Private Client Tax
The deadline for businesses to file their P11D forms is fast-approaching and ahead of the July 6 closing date there is a new major change to consider.
In August 2020, the Court of Appeal ruled three types of multi-purpose crew-cab vehicles are cars, rather than vans, and this could have major tax implications for employers and employees.
The VW Transporter T5 Kombi and Vauxhall Vivaro are two of the vehicles in question, however the ruling will give HMRC the scope to challenge any vehicle which may be considered in a similar category.
These are vehicles that may well look like vans, but also have the ability to be a dual-use vehicle and for example will have a second-row of seats and back windows – alongside the capacity to carry goods.
With this move from being classed as a van to a car, this results in a significantly higher tax benefit.
The car benefit can be up to 37 per cent of the list price of the vehicle (depending on how Co2 efficient they are) and the van benefit for the current tax year sits at £3,500.
This is mirrored too in the fuel charge, when an employer provides fuel for private use in a vehicle. For a car, the charge is based on a figure of £24,600 but for a van it’s only £669.
HMRC has for many years accepted that vans can be business vehicles, however in recent years we have seen people starting to push the limit as to what is actually a van.
This case has been bubbling for a few years, in 2017/18 it went to a tribunal and the Revenue won on two counts, however the ruling wasn’t binding.
But the Court of Appeal case is binding, which means the implications now need to be considered – however, we do not know if the case will be appealed.
This brings significant challenges to companies for vehicles which this time last year were taxed as vans but are now technically cars.
Employees are used being taxed on a van benefit and a low fuel charge – but with the change of categorisation employees will be faced with larger tax charges.
Our message to employers is to take a detailed look at the van portfolio they currently provide to their employees. While the employee pays tax on the benefit, the employer will have to pay a higher level of employer’s national insurance.
It certainly has an impact on both employees and employers.
At Burgis & Bullock, we are asking for more detail about van fleets from our clients to ensure that P11D benefits are reported correctly and clients aren’t pursued by HMRC.
There could be penalties for P11Ds incorrectly filed with van rather than car benefits, so it is essential businesses get their affairs in order and take professional advice.
What else can you do to mitigate the impact of this tax change? Well, consider your vehicle portfolio and see if there is anything you can do to get the vans into personal names, this may be particularly relevant if it’s an owner-managed company (although there will be tax charges associated with this route).
It’s a good time to consider what you do going forwards too, after all there is an even lower benefit on zero-emission electric vans. There are incentives in place to encourage a slow migration over to a more efficient fleet of vehicles.
However, it is of course not possible in most cases to completely overhaul a fleet at such short notice so it’s important that you contact employees and make them aware a bigger tax charge is on the way.
Also make sure any employees that are involved with purchasing future company vehicles are aware of the new ruling and the tax implications that could come in providing multi-purpose crew-cab vehicles.
Our existing clients are certainly becoming more aware of the change and the significant impact it could have if they have a large fleet including the type of vehicle in question.
We’re encouraging a more detailed collection of information in order to protect the position of our clients ahead of July 6.
Please get in touch with us today if you are concerned about the upcoming P11D deadline and to find out more about what the recent ruling means for your fleet of vans.