Setting up multiple companies to separate business interests can seem very straight forward. There are however important considerations. We explore the implications of owning too many companies.
It’s a car! It’s a van! It’s a tax headache waiting to happen!
19 October 2023
Accounting & Compliance, Building a Business, Reducing Tax, Structuring a Business
Is it a car or is it a van?
Sounds like a really simple question.
But like everything in tax the answer is never straightforward as recent tax cases have highlighted.
HMRC Appeal: Van Vs. Car
One case was HMRC v Coca-Cola European Partners Great Britain Limited UKUT 0090 (TCC).
The 2020 case resulted in the taxman winning an appeal to treat Coca Cola’s Vauxhall Vivaro and VW Transporter T5 Kombis (1st and 2nd generation) as cars and not vans.
What needs to be considered?
There are 3 different tax aspects to consider.
Firstly as a general rule VAT can’t be recovered on cars.
Secondly for the driver the taxable car and fuel benefits are as a general rule significantly greater than that for company vans.
Finally generally speaking a van will qualify for annual investment allowance which can have significant tax savings in the year of purchase, whereas a car will not.
Easy enough?
You’d think it would be simple and all 3 taxes follow the same rules right?
No!
Separate Rules
All 3 have their own set of rules and guidelines that all need to be considered.
Whilst you may be able to reclaim the VAT, you may still get hit on the P11D or you may not get the full tax relief from a corporation tax perspective.
So getting it wrong can be expensive and whilst the manufacturer might say this is a van and not a car you need to know the rules.
Example
An example of this, is an Ineos Grenadier Utility Wagon, per its own website, the vehicle is described as this
“Designed primarily to carry loads, the Grenadier Utility Wagon has two seats, and is certified as a commercial vehicle. It comes with a full-height cargo barrier and a full-length flat floor capable of taking a standard Euro Pallet (1,200mm x 800mm).”
Sounds appealing right?
Checking the fine print
Going further through their website there is a section on commercial savings:
“Our 2-seat model and our 5-seat base vehicle are both classified as an N1 by the DVLA. This means they attract road tax and First Road Fund Licence at the lower commercial level, and lower annual Vehicle Excise Duty. The vehicle does not have a 1-tonne payload and does not currently meet the requirements for the classification of Car-Derived Van, but individuals may be able to access further tax savings based on their own circumstances.”
What initially sounded like a great deal, now comes with a hatful of tax implications and a potentially large tax bill at the end of it all!
Our Advice
In short, never assume that it is straight forward and the advice would be to always check with your accountants before finding yourself in losing money that could have easily been avoided!
Disclaimer: This blog post is for informational purposes only and should not be considered professional tax advice.
Be sure to consult a qualified expert for personalized assistance with your specific situation
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The content in this blog is correct as at 9th October 2023 See terms and conditions.
