Company Car Tax Loophole

December 22, 2002

Company Car Tax Loophole


Company Car Tax Loophole

In the very first issue of Topical Tips last year we drew your attention to the punishing new levels of company car tax that came into effect on 6 April 2002 and suggested certain ways in which these rules could be side-stepped.

One strategy that we highlighted was to have a company van rather than a company car. The tax payable in respect of a van is a maximum of £200 per annum and the scale charge for using company purchased fuel for private motoring is NIL. Double-cab pick-ups like the one shown above were seen as particularly attractive as they share many of the features of a well-equipped car, but are defined as vans. Unsurprisingly, the Inland Revenue has been fighting this loophole.

The Inland Revenue’s basis for dispute was the grey area of defining what is and what is not a “van” for the purposes of the legislation.

Whilst the definition of a “van” for VAT purposes is quite clear (if a vehicle has a payload of more that 1 tonne it is a van), the income tax legislation was far more subjective. The definition hinged on whether the vehicle is primarily suited for the conveyance of goods or people. This enabled the Inland Revenue to argue that double-cab pick-ups failed the “van” test, as while they can carry heavy goods, they are equally suited to carrying passengers in a fair degree of comfort.

An Inland Revenue climb-down – for this year at least

The good news is that following a consultation process, the Inland Revenue has just announced that it will accept that a vehicle that satisfies the VAT “van” definition will also satisfy the income tax “van” definition. The position is now objective, clear and consistent.

In view of this new development, the double-cab pick-up option is now unarguably available to people who do not like paying huge amounts of tax on company cars and private fuel. Get a double-cab pick-up, make sure its payload is more than 1 tonne. and your maximum tax bill will be £200 per annum – no matter how luxurious the vehicle.

Barnes Roffe Topical Tips

  • Company car users need to decide whether they are prepared to drive around in a double-cab pick-up – if so go for it!
  • Bear in mind the Inland Revenue may seek to close this loophole in the future
  • If a van is out of the question, consider whether the car should be purchased privately. Often, the savings available in taking this course of action are substantial.
  • In any event, company car users should decide whether they should take company supplied fuel for private motoring – often the tax bill on the benefit is larger that the actual cost of the fuel.

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PLEASE NOTE: By the very nature of this type of information the details of tax law might have changed since they were published, so contact your Barnes Roffe partner before acting on any matter contained in these documents.