VAT on cars, vans and fuel explained

Certain times of the year it seems my job description widens to include being a petrol head.

Despite providing a broad range of tax advice on benefits & expenses, VAT and CIS, my advice is very often required on cars, vans and fuel.

Electric cars are interesting for tax, as the treatment of their “fuel” provision differs between direct supply by the employer and reimbursements of electricity from employee’s homes.

But the “when is a van not a van” debate is even more controversial.

For direct tax, a vehicle is treated as a van when it is a mechanically propelled goods vehicle (a road vehicle of a construction primarily suited for the conveyance of goods or burden of any description) which has a design weight not exceeding 3,500kg.

So when an employer provides a vehicle, to an employee, the first question should be, is it a van?

Well, do you feel lucky?

Perhaps not, if you provide an employee with a panel van with seats and windows behind the drivers’ seat. Or where you have had the original panel van adapted to have seat and seat belt fittings added in the rear space.

Sometimes the HMRC officer’s work has been made easier by the van having a name such as “crew carrier” or “combination van”.

The potential cost of a four-year tax assessment on the difference between van/ van fuel scale charges, the car/car scale charges could be significant.

Where an employer hasn’t included the van on the P11D, because the private use is limited to ordinary commuting, but the vehicle is subsequently determined to be a car, the arising assessment for tax and Class 1A NIC will be significant.

The officer’s VAT colleagues might then become involved and recover the input VAT claimed on the purchase of the “van, now car”, together with the VAT on the fuel provided.

In a recent Tax Tribunal, three vans were considered, all of which had been altered to add various seats, windows, shelving, racking, netting etc. The Tribunal disregarded the use to which the vehicles were actually put. The Tribunal’s decision was based on an objective view of all the characteristics of the vehicles.

Despite two of the vans in the case retaining significant cargo space, they both had additional seats to the rear of the driver. This, in the judged view made them multi-purpose. With no primary suitability for either passengers or goods, they failed the test set in law to be treated as vans, and so were assessed as cars.

The short checklist for every employer providing vans should be:-

  1. is it primarily suited for the conveyance of goods, as per the above definition,
  2. do you have records to show the private mileage travelled in the vehicle is only ordinary commuting,
  3. do you prevent additional private use, or do the employees occasionally use it for private use but it’s not declared on the P11D because they make good the cost of that private use (incorrect).

 

For VAT, the definition for a van is different than that used for direct tax, and ordinary commuting will not be disregarded for VAT purposes, leaving a difficult calculation for recoverable input VAT on purchase and fuel provided.

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