W(h)ither the Company Van?

ROGER H JONES BSc, FTII, TEP investigates the boundaries of the definition of a van in relation to benefits in kind.

AUDITUM AND NOTAX are a progressive firm of accountants and tax advisers. Following the principle of 'look after your staff and they will look after the firm', there is a very flexible remuneration policy. Accordingly, all managers are entitled to a totally free choice of company vehicle within a given price range.

Bill Lotts is a senior manager in the London office and chose a Mitsubishi Shogun Sport Diesel. After all, it is a jungle in the off-road environment of Sainsbury's car park, and his wife looks good in it on the school run. Given his office location, Bill rarely uses the car for work but, given strategically placed conferences in Plymouth and Newcastle-upon-Tyne, he just scrapes 2,500 business miles per annum. With an original list price of £22,000, his Schedule E scale benefit is currently £5,500. The CO2 emissions figure is above the 265 g/km maximum, so next year his benefit will be £7,700.

Ivor Goodhuise is a senior manager in the Bristol office and thinks he has the answer to the problem. Young and single, he enjoys many outdoor sports. He has found just the vehicle to carry around his surfboard and other equipment – a Mitsubishi 4life. He does rather more business miles than Bill. The original list price of the vehicle (which has the same diesel engine as Bill's Shogun) is £20,000 but he believes that the scale benefit, both for this year and next, will be just £500. Is he right?

I suspect that few readers will have seen, or even heard of, the Mitsubishi 4life. It is based on the L200 double cab pickup from that manufacturer. Very much intended as a 'lifestyle vehicle', it has smart upholstery, air-conditioning, electric windows, etc. The loadspace is still there, of course, but it is unlikely that many users of such a vehicle will put a serious business load such as bricks, bags of cement, etc. in it. In considering the chargeable benefit to be £500, Ivor clearly thinks it is a van. However, my experience leads me to believe that the Inland Revenue may think otherwise.

Is it a car or is it a van?

With the switch to an emissions based system, many company car drivers will be worse off from 6 April 2002. However, that is not exclusively the case and users of smaller more efficient vehicles could be at an advantage. Some of the losers are proprietors of family companies who can totally influence the vehicle they drive. For them, a van may actually make sense. Who wants to be seen driving a Ford Transit for social, domestic and pleasure purposes, though?

The Mitsubishi 4life is an extreme example, but there is clear evidence that other manufacturers are producing 'commercial' versions of popular recreational vehicles. Land Rover, for example, now produces a Discovery Commercial and a Freelander Commercial. They have solid panelled sides and no rear seats but otherwise are broadly similar to the cars from which they are derived. There is an increasing range of alternatives. In some ways this may be seen as the arrival of the 'sports utility' vehicle from across the Atlantic but car salesmen seem quick to point out the 'tax efficiency' of these supposed vans. Increasingly frequently I am asked whether vehicles of this type are vans and therefore qualify for a fixed scale benefit of £500. I wish I could give a straight answer but presently find it impossible to do so.

About a year ago (Taxation, 25 January 2001 at page 389), Ray Chidell explored the advantages of driving a van rather than a car. He gave the basic definition of a van but did not address possible Inland Revenue views.

Definition of a van

Starting at first principles, a van is defined for these purposes in section 168(5A)(a), Taxes Act 1988, thus:

'a mechanically propelled road vehicle which is:

This seems tight enough, and it should not prove impossible to draw up a list of vehicles which satisfy these parameters as vans. The Revenue steadfastly refuses to do this, obviously recognising that there will be some 'leakage around the edges'. Standing instructions to local Inspectors are to refer all individual cases of difficulty to Personal Tax Division, Solihull. The Inland Revenue Schedule E Manual at paragraph SE23044 acknowledges difficulties of classification, highlighting particularly the double cab pickups, and paragraph SE23045 does confirm the reference to Personal Tax Division.

The tape measure test

Much of the guidance to Inland Revenue staff on the problem is to be found in the commentary on car benefits rather than vans; see especially paragraph SE23031 of the Schedule E Manual. This dwells especially on the words: 'primarily suited for the conveyance of goods or burden of any description' (in this respect in the definition of car not van – the emphasis on primarily is mine). Incidentally, it is not accepted that people are goods or burden (see paragraph SE22065).

The Inland Revenue guidance goes on to highlight the word which I have emphasised:

'The importance of the word primarily is that it:

• recognises that a vehicle may be suited to fulfil more than one role and
• makes it clear that a vehicle will only fall outside the definition of a car in this context if it has a predominant purpose of carrying goods or burden.'

Paragraph SE23044 says that it is necessary to examine factors such as:

• 'the dimensions of the load carrying area (both in absolute terms, and relative to the passenger cab);
• the payload (both in absolute terms, and relative to the proportion of the payload that would be used up with a full complement of passengers); and
• the general specifications of the vehicle.'

With this background, it is perhaps not entirely apocryphal that I have heard of a Schedule E compliance officer who took a tape measure to a double cab pickup to determine the relative size of the cab and the loadspace. Of more veracity is the employer who had several visits from a compliance officer who kept looking at such a vehicle to establish its use, i.e. was it regularly loaded with stock or tools of the trade.

Uncertainty

In the absence of satisfactory case law (and I have yet to hear of any cases heard before the Commissioners), where one encounters a dual purpose vehicle, it seems necessary to establish the predominant use. In the absence of any commercial use (i.e. load carrying) at all, it seems unlikely that the Inland Revenue will accept that it is a van. The fact that it could be used for a commercial purpose seems irrelevant. But, I do admit to a degree of uncertainty.

In many cases, the poor client is even more perplexed. Often he has heard that, if the vehicle has a payload of one tonne or more, it is not a car. However, this is a statutory definition for VAT purposes, which resolved a number of conflicting tribunal decisions. Despite what clients may think, it has no relevance to income tax.

The first reply to a reader's query 'A continuing argument' (see Taxation, 5 February 1998 at page 457) stressed that it is the construction and type of vehicle which determines the tax treatment rather than the use by any particular taxpayer. Taking a contrary point of view, the second response to a reader's query 'Vans for directors' (Taxation, 5 May 1997) thought that personal considerations in the choice of vehicle were greater than the needs of the business and the Inland Revenue might be justified in charging a car benefit. Just for good measure, it is recorded (Taxline, September 1995) that estate cars permanently adapted for commercial use have been accepted by the Inland Revenue as vans.

Definition of a car

Incidentally, if vehicles of this type are not vans, then I think they must be cars. Ray Chidell concluded his article with the mysterious comment that 'it should be borne in mind that if the vehicle falls outside the definition of both van and car, then other tax consequences may ensue'.

For Schedule E benefit purposes, car is defined in section 168(5)(a), Taxes Act 1988 as:

'any mechanically propelled road vehicle except:

Unless we find something that is not of a construction primarily suited to the carriage of goods or burden and both not commonly used as a private vehicle and unsuitable for such use (whatever that may be), then it must be a car.

Future scale benefits

This leaves us with the final problem. Has anyone tried to find a CO2 emissions figure for vehicles of this type? I have tried and failed to find such information for the Mitsubishi 4life, which is not car based. So, if Ivor (and an increasing number of people like him) find they are actually driving cars and not vans, then they have a practical problem in determining the true benefit in kind chargeable.

A nasty shock

If my experience is representative, and I have no reason to suppose otherwise, many individuals now choosing vehicles they believe to be vans in order to reduce the Schedule E benefit in kind may be in for a nasty shock. Vans received no more than passing mention when scale benefits for cars were reviewed. Current practical guidance on the Revenue's view is desperately needed.

Roger Jones is senior tax manager at Larking Gowen in Norwich but the views expressed are personal and do not necessarily reflect the opinion of the firm.

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