Cars and commercial vehicles – Everything you need to know

Are you buying a van or a car? And why does it matter?

When it comes to buying vehicles for use in the business, there is a big difference tax-wise between cars and commercial vehicles. Here’s why it matters:

• Commercial vehicles can attract full tax relief against trading profits in the year of acquisition, whereas most non-electric cars only get a writing-down allowance of 6% or 18% on a reducing balance basis.
• VAT registered businesses can reclaim the input VAT on commercial vehicles. However, they cannot do so with cars except on very rare occasions.
• The benefit in kind (BIK) charge on employees who use cars can be significantly higher than those who have, say, a van. However electric cars currently have favourable BIK rates.

What is a car?

This varies slightly between the different taxes but often it is easy to identify.

For capital allowances purposes a car is a type of vehicle that:

• Is suitable for private use – this includes motorhomes
• Most people use it privately
• Was not built for transporting goods

For VAT it is any motor vehicle of a kind normally used on public roads which have 3 or more wheels and either:

• Is constructed or adapted mainly for carrying passengers
• Has roofed accommodation to the rear of the driver’s seat that’s fitted with side windows or that’s constructed or adapted for the fitting of side windows.

But not:

• Vehicles capable of accommodating only one person or suitable for carrying 12 or more people including the driver
• Caravans, ambulances and prison vans
• Vehicles of not less than 3 tonnes of unladen weight
• Special purpose vehicles, such as ice cream vans, mobile shops, hearses, bullion vans, and breakdown/recovery vehicles
• Vehicles with a payload of one tonne or more.

And for Benefit in kind:

A car is a mechanically propelled road vehicle that is not:

• A goods vehicle (a vehicle of a construction primarily suited for the conveyance of goods or burden of any description)

So, when is a van a car?

The grey area often comes with vans and pickup trucks that have more than one row of seats. Are they primarily suited to convey goods or people? HMRC state that a double cab pickup that has a payload of 1 tonne (1,000kg) or more is accepted as a van for benefits purposes.

However, if a commercial vehicle does not have such a payload, it would be down to HMRC’s interpretation of whether the vehicle is designed for conveying goods or not. A recent case won by HMRC against Coca-Cola ruled that its crew cab vans were in fact cars highlighting the need to get this right.

Make sure you get tax advice before purchasing any vehicle to ensure you are aware of the tax implications.

Disclaimer.

This article has been prepared for information purposes only. Formal professional advice is strongly recommended before making decisions on the topics discussed in this release. No responsibility for any loss to any person acting, or not acting, as a result of this release can be accepted by us, or any person affiliated with us.