Car vs Van – Tax treatment of electric vehicles

There have been several important tax decisions previously regarding the difference between vans and cars, but how do the different rules regarding electric vans affect their tax treatment?

Let’s use a hypothetical:

A Ltd has acquired a new electric company van that its director, Bob, uses to go to and from work, as well as during the regular workday.

However, Bob also has the van in the evening and at the weekend for his private use. For Benefit in Kind (BiK) purposes, the company classes the vehicle as an electric van.

Unlike company cars, the BiK charge for an electric van is nil. Therefore, employees with electric company vans can, where permitted to do so by their employer, use their company van for unrestricted private use without any associated tax charge.

Unfortunately, HMRC disagrees with this judgement and argues that the van, is in fact, an electric car and not a “goods vehicle”, as defined by Section 115 ITEPA (Income Tax (Earnings and Pension) Act) 2003.

This states:
(1) In this Chapter— “car” means a mechanically propelled road vehicle which is not:
(a) a goods vehicle,
(b) a motorcycle,
(c) an invalid carriage, or
(d) a vehicle of a type not commonly used as a private vehicle and unsuitable to be so used;
“van” means a mechanically propelled road vehicle which:
(a) is a goods vehicle, and
(b) has a design weight not exceeding 3,500 kilograms, and which is not a motorcycle.
(2) For the purposes of subsection (1)…
“goods vehicle” means a vehicle of a construction primarily suited for the conveyance of goods or burden of any description;

In reaching such a decision, HMRC would need to prove that the van in question had multiple purposes, beyond just the transport of goods.

Many modern vans have been designed and are advertised as multipurpose vehicles, and there are a number on the market that have crew cabs or “kombi” roles, that allow for passengers as well as goods.

This confusing situation has been tested many times, not least in the case of Payne, C Garbett, Coca-Cola European Partners GB Ltd v HMRC at the Court of Appeal on 20 July 2020.

In this case, HMRC was able to prove that the VW Transporter T5 Kombi and Vauxhall Vivaro vehicles provided by Coca-Cola to employees were not vans, and instead served the purpose of being a car.

Examples and cases such as this can make it difficult for companies to find the most tax-efficient fleet of vehicles and can make the choice of vans and cars more complicated.

If you are looking to purchase new vehicles for your business, it is important to seek expert advice. Contact us to find out more.