Farmers and rural business owners should beware claiming Income Tax relief on vehicles provided to employees and directors, following a recent court case affecting double cab pick-ups.
According to rural accountant Old Mill, the case is likely to affect many rural businesses, due to the popularity of such vehicles. “A two-seater pick-up that is capable of carrying a payload of 1,000kg or more can be categorised as a van for VAT purposes, meaning the VAT on any purchase price can be reclaimed,” explains Paul Neate, director at Old Mill.
“However, there is a misconception that this also makes it eligible to be treated as a van for the purposes of assessing benefits in kind, but that isn’t necessarily the case.”
In a court case between Coca Cola and HMRC, the Lower Tier Tribunal found that, given the vehicle could carry both passengers and goods, it did not count as ‘primarily’ suitable for the conveyance of goods – and therefore did not qualify as a commercial vehicle for Income Tax purposes. “While the case may end up at appeal at the Upper Tier Tribunal, farmers and rural business owners should be careful of their treatment of such vehicles,” warns Mr Neate.
The ruling could have significant financial implications, he adds. “Cars do not qualify for the Annual Investment Allowance, whereas commercial vans do. The full price of a van can therefore be directly offset against Income Tax in the first year, whereas a car will only qualify for a much smaller annual writing down allowance – depending on its business / private use.”
For those providing vehicles to employees, the treatment of benefits in kind will also be affected. “When classified as a car, the benefit in kind is based on its list price when new and its emissions,” says Mr Neate. “A vehicle with a list price of £30,000 could give rise to a benefit of around £20,000 including fuel, which, for a higher rate taxpayer would cost the employee about £8,000, plus nearly £3,000 for the employer in extra National Insurance. With a van, the benefit is based on a fixed value set by HMRC: In 2018/19 this amounts to £3,983 including the fuel, the tax on which would be £1,593, plus around £550 for the employer.”
Another consideration is that, when categorised as a van, employees are able to take the vehicle home overnight if it is being used for business purposes the following morning. They cannot do so when the vehicle is classified as a car as this is regarded as being available for private use – and therefore taxable as a benefit.
“When purchasing a commercial vehicle, it’s vital that business owners are fully versed in the tax implications,” says Mr Neate. “And for those who are already running combi vans, it’s worth checking where you stand before submitting your P11D benefits form and year-end accounts – or you could end up in hot water with HMRC.”