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Company car or is it a company van?

An employee who by reason of their employment, is provided with a company car will generally (though not in all cases) pay more tax on the benefit than an employee who is provided with a company van. However, distinguishing between a car and a van may not be an easy ride as evidenced in a recent tax case.

The individual concerned was employed as a mobile technician and was provided with a Land Rover Discovery 4 2.7 TDV6 GS Auto by reason of his employment. He objected to a HMRC decision that this should be taxed as a car and not as a van as it had been specially modified to carry engine components and tools for his job.

Specifically, the entire boot area was filled with racking and tool boxes which were bolted to the structure of the vehicle. In addition, the rear seats could not be used as seats as extra tool boxes had been securely fixed over them. The modifications also included additional lighting, electrics and special control systems. So what is a car?

A car for tax

Tax law states that a car is a mechanically propelled road vehicle which is not:

• a goods vehicle
• a motor cycle or
• a vehicle of a type not commonly used as a private vehicle and unsuitable to be so used.

And a van is...

A van is a mechanically propelled road vehicle which:

• is a goods vehicle and
• has a design weight not exceeding 3,500 kilograms and which is not a motor cycle.

A goods vehicle means a vehicle of a construction primarily suited for the conveyance of goods or burden of any description.

Journey’s end

The employee accepted that the Land Rover was a mechanically propelled road vehicle and that it was not a motor cycle, invalid carriage or a vehicle of a type not commonly used as a private vehicle and not suitable for such use.

The Tribunal found that although the Land Rover supplied may have become primarily suited for the conveyance of goods or burden this was as a result of the modifications, which had been made to the vehicle so as not to fundamentally alter its structure, and not because it was "of a construction" for such a purpose. On this basis they were not able to find that the Land Rover Discovery was a goods vehicle.

Avoiding the cost

The case illustrates that HMRC continue to be vigilant on the issue of whether directors and employees are provided with a company car. This is an area where caution is needed if the aim is to ensure tax bills are minimised, so please contact us for advice in structuring transactions in this area.

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