When is a van…not a van?
Are you thinking about buying a new commercial vehicle for your business? Well, tread carefully because an incorrect choice could lead to an unexpectedly large tax bill.
Of the three vans pictured above, one is technically classified as a car! Read on to discover just how fine the margins are – it could be the difference between an additional tax bill and a carefree purchase.
Reclaiming VAT vs. Income Tax
When it comes to reclaiming VAT, all three of these vehicles are classified as vans. This is because their payload exceeds 1 tonne. So, from a VAT perspective, these three vans truly are vans.
However, it is in the income tax department that these three vehicles differ. Two of these are classed as vans when it comes to income tax, and one of them is legally considered to be a car. Any idea which is which?
Spoiler alert – the white ‘van’ is actually a car. HMRC’s guidelines are slightly confusing on this, and while the vehicles, at first glance, seem to have plenty in common, they differ in several key ways.
What’s the difference?
When it comes to Benefits in Kind, HMRC defines a van as a vehicle that transports goods or burden. The black transit van, for example, has no additional seating. As a result, its primary purpose is for carrying goods or burden, leading to its classification as a van. The same is true for the double cab pickup. Although the van can also be used to transport people, HMRC allow double cab pickups to be treated as vans for tax purposes if the payload exceeds one tonne.
The same principle could be applied to the white Kombi van, whose payload area is far larger than the passenger area, suggesting that its primary purpose is for carrying goods or burden. However, this is where it gets slightly tricky. One of the conclusions of the Noel Payne vs. HMRC case last year was that the Kombi vans are primarily constructed to carry goods and people equally, meaning that they would not pass the statutory test requiring the construction of the vehicle to be primarily for the conveyance of goods or burden. This is because people do not count as either goods or burden.
A tricky definition
Confusingly, the actual use of the Kombi van is not relevant, as the statutory test is purely based on the vehicles construction, which is in turn influenced by the manufacturer’s intention. So, even if you were to exclusively use the Kombi van for cargo, it still wouldn’t be classified as a van.
The only legal way around this is to make sufficient modifications to make it suitable for primarily carrying goods, like removing a row of seats and installing racking. While the Noel Payne trial did not set legal precedent, it does make it harder to defend the Kombi van in the event of an enquiry or investigation. As a result, this would be a very risky purchase, as there’s no telling how HMRC will classify your vehicle or if you’ll be able to prove that it’s a van.
What’s the big deal?
So, what does this all mean, then? It’s all well and good, all this talk about classifications, but what does this mean for the average Joe looking to buy a commercial vehicle. Shockingly, the additional income tax and National Insurance for this particular vehicle would be in the region of £7,000. Quite the surprise if you think you’re making a shrewd business decision…
Making the right decision
It’s not always easy to make the right decision, especially when navigating through HMRC’s dense web of financial regulations. We hope this article has helped prove that even obvious things, like buying a van, may have hidden and costly implications.
That is why it’s always important to seek the guidance and professional support of your accountant, no matter how small or insignificant the business decision is. That’s where Defacto-FD come in. We can help you avoid the financial pitfalls of running a business – just get in touch with us for more information.