Following the decision in the Upper Tribunal (UT) case of Noel Payne, Christopher Garbett, Coca-Cola European Partners Great Britain Limited v HMRC  UKUT 0090 (the ‘Coca-Cola case’) released in March 2019, we have received a number of enquiries from members about the impact of the case on the benefit in kind treatment of similar vehicles used by their clients. A particular concern has been the position for prior years. This is an exceedingly complex area and requires the member to consider not just the technical tax aspects, but also their obligations under PCRT.
Background to the case
In the Coca Cola case, the First Tier Tribunal (FTT) was asked to consider whether three apparently similar vehicles provided by Coca Cola to their employees were cars or vans. The vehicles – a series 1 VW Kombi, a series 2 VW Kombi and a Vauxhall Vivaro - look very similar from the outside, are based on a panel van design and marketed as commercial vehicles but have additional seating and windows behind the driver. Both had also been subject to modifications after manufacture. Both had been treated by Coca Cola as vans.
In a finely balanced decision, the Vivaro was held to be a van, and the two Kombi vehicles to be cars.
In a further complication, we are advised that the case is likely to go to the Court of Appeal and cannot be considered final at this stage.
Setting aside the technical tax issues for the specific vehicles in this case (which are discussed further here), what are the consequences for P11D reporting purposes where a vehicle which has previously been regarded as a van by the employer is reclassified as a car?
The deadline for completion of P11Ds for this year is imminent and, despite the potential appeal, members will have been required to consider the impact of the Coca Cola case when preparing these returns.
In light of the case, members should have reviewed the tax treatment of all crew cab type panel vans provided to employees by reason of their employment and whether some or all of these should be returned as cars on 2018/19 P11Ds. If in doubt, members should take appropriate advice from a specialist in this area.
Unless their client’s vehicles can be distinguished on the facts, many members will have found themselves in the position of advising clients that certain vehicles can no longer be considered a van and must be taxed as a car, significantly increasing the tax cost for both employee and employer.
Where the client refuses to accept a member’s advice, then they need to consider their obligations under PCRT (and in relation to anti-money laundering (AML) requirements). Here the position is complicated by the fact that the case may not be final. PCRT help sheet C: Dealing with errors provides guidance in respect of the Court/Tribunal decisions and whether corrective action is required as a result. If members need further guidance in relation to the application of PCRT or AML requirements they can contact a member of the Professional Standards team standards [at] ciot.org.uk.
We have received many queries from members about what to do for earlier years and whether amendments need to be made in the light of the UT decision to returns made.
The position is again complicated by the fact that the case is not final.
When 2017/18 returns were being prepared a decision had only been made at FTT and, while persuasive, it was not binding at that stage and many commentators struggled to support the conclusions reached. Given that FTT decisions are often appealed and can be overturned on appeal there is an argument that this single case was not enough to justify a change of position.
Provided therefore that members had made reasonable enquiries and been able to reach an informed decision at the time of preparing 2017/18 or earlier returns then, given the uncertainty, it is reasonable to wait now until the case is final before making a decision on amending earlier returns.
While waiting for finality, it would be prudent for members to put clients on notice that a disclosure may be required in respect of earlier years.
As referred to above PCRT help sheet C: Dealing with errors provides guidance in respect of Court/Tribunal decisions and whether corrective action is required as a result.
Paragraph 49 is particularly relevant, as the position depends very much on whether or not the treatment of vehicles like the VW Kombi as a van and not a car could be considered the prevailing practice at the time that earlier years’ returns were prepared. The CIOT are keeping the issue under review and would be interested to hear members’ experiences, particularly their views on what the prevailing practice for the treatment of crew-cab vans was in 2017/18 and previous years and how many of their clients are potentially affected by the result of the Coca Cola case. Please send comments to technical [at] ciot.org.uk.
We have asked HMRC to issue guidance on the position for 2018/19 and earlier years. As yet, HMRC has not made any statement or issued guidance in relation to its view of the tax treatment of these vehicles beyond the long-standing guidance in its Employment Income Manual at EIM23110.