Payne and Others
| Jurisdiction | UK Non-devolved |
| Judgment Date | 30 August 2017 |
| Neutral Citation | [2017] UKFTT 655 (TC) |
| Date | 30 August 2017 |
| Court | First Tier Tribunal (Tax Chamber) |
[2017] UKFTT 0655 (TC)
Judge Guy Brannan
David Ewart QC instructed by Reynolds Porter Chamberlain LLP appeared for the appellant
Oliver Conolly, counsel, instructed by the General Counsel and Solicitor to HM Revenue and Customs, appeared for the respondents
Income tax – ITEPA 2003, Pt. 3, Ch. 6 – Provision of cars, vans and fuel to employees – Whether three vehicles were goods vehicles – Whether a vehicle of a construction primarily suited to the conveyance of goods or burden within ITEPA 2003, s. 115(2) – Modifications to vehicles – Correct test to be applied – Appeal of first and second appellants dismissed – Appeal of third appellant allowed in part.
The First-tier Tribunal (FTT) decided that for the purposes of the definition in ITEPA 2003, s. 115(2), a Vauxhall Vivaro was primarily suitable for the conveyance of goods or burden, even with the addition of two further passenger seats, but that as a VW Transporter T5 Kombi van (first generation) (“Kombi 1”) and a VW Transporter T5 Kombi van (second generation) (“Kombi 2”) were equally suitable for carrying goods and passengers, they were not primarily suitable for the conveyance of goods or burden.
The appeal concerned the provision of three different types of vehicle. The first and second appellants were appealing against PAYE coding notices for the 2016–17 tax year in relation to the use of Kombi 2 vehicles and the third appellant was appealing against an HMRC decision of 10 March 2016 that it was liable to Class 1A NIC in respect of Vauxhall Vivaro and Kombi 1 vehicles together with fuel made available to employees in the period from 6 April 2011 to 5 April 2012.
All three vehicles are based upon a panel van. Third party contractors made adaptations to all three types of vehicle.
The Vivaro was adapted by having two seats added that took up just over half of the width of the van and an additional window added behind the front row of seats together with a steel bulkhead behind the mid-section, panelling, racking, strapping, cargo nets, cargo tracks, shelving and storage units. Some of the shelving was in the mid-section, behind the twin seats and to their left-hand side.
The Kombi 1 and Kombi 2 had a removable second row of seats and windows on both side of the mid-section as standard. Alterations were made behind the mid-section to add a partition between the passengers and the load area, storage modules, containers, straps, storage pockets and panelling.
In the Kombi 2, the second row of seats was in a 2+1 combination. Optional racking was installed in the mid-section of the Kombi 2 and when both storage units were fitted, the second row of seats had to be removed. However, it was possible to have racking on just the right-hand side and retain a single seat on the left-hand side of the mid-section. The employer (Coca-Cola) imposed a requirement that the racking in the mid-section was in place during working hours.
The burden of proof was on the appellants to demonstrate that each of the three vehicles was a goods vehicle. It was common ground that whether a vehicle falls within the “goods vehicle” exception in ITEPA 2003, s. 115(2) is a question which must be determined objectively taking account of all the characteristics of the vehicle in question. The actual use to which a vehicle is put by a particular employee or employer is irrelevant.
The judge considered that the test had to be applied to the vehicles in their modified states rather than at the time of their original construction. Although the Vivaro was capable of carrying both passengers and cargo, because the mid-section cargo-carrying capability existed even when the mid-section seats were in place in the vehicle, the judge concluded that on a narrow balance, the Vivaro was primarily suited to the conveyance of goods and was therefore a goods vehicle. However, the judge considered that both the Kombi 1 and the Kombi 2 were multi-purpose vehicles with no primary suitability. Therefore, the Kombi 1 and the Kombi 2 were not of a construction which was primarily suitable for the conveyance of goods or burden. The appeal of the third appellant was allowed insofar as it related to the Vivaro, but was dismissed to the extent that it related to the Kombi 1. The appeals of the first and second appellants were dismissed.
In reaching this decision, the judge disagreed with the test used in Jones [2012] TC 01958 that considered that the “construction” of a vehicle could only be altered by modifications which amounted to a fundamental alteration to its structure. The judge considered that this would lead to the incongruous conclusion that an employer could acquire a vehicle that was a goods vehicle and add windows and rows of seats taking up all of the cargo space and still claim that it was a goods vehicle.
The fact that the employer imposed a requirement that the racking in the mid-section of the Kombi 2 vehicle was in place during working hours so that its actual use was primarily for the conveyance of goods in the course of the working day made no difference to the decision as it was agreed that test concerned the characteristics of the vehicle rather than its actual use.
[1] These three joined appeals all raise the same issue. In a nutshell the question is whether each of three different types of vehicle supplied by the Third Appellant (“Coca-Cola”) to its employees is a “goods vehicle” for the purposes of section 115(2) Income Tax (Earnings and Pensions) Act 2003 (“ITEPA”). Section 115(2) defines a “goods vehicle” as “a vehicle of a construction primarily suited for the conveyance of goods or burden of any description …” The Appellants contend that each of the three vehicles is a “goods vehicle” and the Respondents (“HMRC”) contend that they are not.
[2] These appeals concern income tax in relation to the First and Second Appellants and National Insurance Contributions (“NICs”) in relation to the Third Appellant.
[3] A different (lower) rate of income tax applies if a vehicle is a “goods vehicle”. I am asked to determine that issue as a point of principle, leaving it to the parties to agree the numerical consequences of that decision.
[4] The three joined appeals before me have been arranged so that the “goods vehicle” issue can be determined in relation to 3 different types of vehicle. The three appeals are as follows:
- an appeal by the First Appellant against a PAYE Coding Notice for the tax year 2016/17 in relation to the use of a VW Transporter T5 Kombi van (second generation) (Kombi 2);
- an appeal by the Second Appellant against a PAYE Coding Notice for the tax year 2016/17 also in relation to a VW Kombi 2;
- an appeal by the Third Appellant against an HMRC decision, issued on 10 March 2016, that it is liable to Class 1 A NIC in respect of vans and fuel made available to employees in the period 6 April 2011 to 5 April 2012. The vans were the VW Kombi Transporter T5 (first generation) (Kombi 1) and the Vauxhall Vivaro (the Vivaro).
[5] As well as the usual bundles of documents and exhibits, three witnesses gave witness statements and were cross-examined. First, Mr Thomas Sayer gave evidence on behalf of the Appellants. Mr Sayer is the manager of the car and van fleet for the Third Appellant (and its predecessor within the Coca-Cola group). Secondly, Mr Michael Roberts, an independent engineer with particular expertise in the fields of motor-vehicle design and construction, gave expert evidence for the Appellants.
[6] Thirdly, Mr Michael Phillips, an automotive executive with over 30 years of experience in the automotive industry, gave expert evidence for HMRC.
[7] Finally, the witnesses and I were able to examine the Kombi 2, which was helpfully produced for inspection during the hearing by the Appellants.
[8] Section 115 ITEPA, so far as material, provides as follows:
(1) In this Chapter–
- car means a mechanically propelled road vehicle which is not–a goods vehicle,a motor cycle,an invalid carriage, ora 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–is a goods vehicle, andhas a design weight not exceeding 3,500 kilograms,and which is not a motor cycle.
(2) For the purposes of subsection (1)–
- design weight means the weight which a vehicle is designed or adapted not to exceed when in normal use and travelling on a road laden;
- goods vehicle means a vehicle of a construction primarily suited for the conveyance of goods or burden of any description …
[9] The provisions which relate to fuel are found in sections 120–153 ITEPA.
[10] There is a corresponding charge to Class 1A NICs in section 10(1) Social Security Contributions and Benefits Act 1992.
[11] Have been considered the evidence of Mr Sayer, Mr Roberts and Mr Phillips, together with the related documentary evidence, I find the facts to be as set out below.
[12] Until 1997, Coca-Cola's technicians had used estate cars. In 1997 Coca-Cola decided to equip their technicians with vans because its technicians were required to carry significantly more, and heavier, equipment them before. It had become apparent that the vans originally used by Coca-Cola, with 1.9 litre diesel engines, were underpowered and therefore Coca-Cola had started using the Vivaro and the Kombi 1 and 2 which had more powerful engines.
[13] Mr Sayer confirmed, in relation to all three vehicles, that Coca-Cola offered its employees the choice between a panel van (i.e. with no seats in the mid-section of the vehicle) and a vehicle as modified by a third party specialist contractor. It was suggested to Mr Sayer, in cross-examination, that the employees would opt for the van as modified by the third party in order to use the rear seats for their own private purposes and Mr Sayer confirmed that this was correct. There was no evidence to suggest that the employees undertook their own modifications.
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