HMRC successfully appeals Upper Tribunal multi-purpose van classification decision

The taxpayers, Noel Payne, Christopher Garbett, and Coca-Cola European Partners Great Britain Ltd, the latter of whom provided the vehicles to large numbers of their employees, argued that the vehicles in question were “goods vehicles”. They also appealed against a different part of the Upper Tribunal decision in respect of other types of vehicles.

The appeal was heard in the Court of Appeal (Civil Division) by Lord Justice Patten, Lord Justice Richards, and Lady Justice Asplin.

Modified vehicles 

Mr Payne and Mr Garbett were employed by Coca-Cola as technicians during the relevant times. In the tax year 2016-17 they were provided with second-generation Volkswagen Transporter Kombi vans by the company for use both at work and for their own private purposes. Other employees had previously been provided with first-generation Kombi vans and Vauxhall Vivaros.

The vehicles were modified by a specialist contractor on Coca-Cola’s behalf to make them suitable for use by its employees. Each Vivaro was given a second row of seats with a steel bulkhead behind them to make sure that goods being transported could not enter the passenger compartment. There was still 1.5 cubic metres of space in the new middle passenger compartment for goods.

Both models of Kombi received similar modifications that separated passengers from the rear load area, although unlike the Vivaro the Kombi had a mid-section of seating that could be removed without tools. Both vans received racking in the rear section, with the Kombi 2 also having removable racking for the mid-section that employees were contractually obliged to keep in place during working hours, which required the removal of the middle seats.

HMRC determined that none of these vehicles were “goods vehicles” under the Income Tax (Earnings and Pensions) Act 2003 and classified them as cars. This decision was appealed to the First-tier Tribunal Tax Chamber, which decided that the Vivaro was a goods vehicle, as despite its modifications it was still “on a fine balance” primarily suited to the conveyance of goods, but the Kombis were not owing to their more flexible characteristics.

Both the taxpayers and HMRC appealed parts of the decision to the Upper Tribunal. Coca-Cola along with Mr Payne and Mr Garbett appealed the parts of the decision that related to the Kombis, while HMRC challenged the parts that related to the Vivaro. The UT upheld the decision of the FTT in its entirety. All parties then appealed further on the same grounds.

The taxpayers argued that the UT failed to apply the correct statutory test to the Kombis and based its decision on the use of the interior of the vehicle rather than considering its construction and appearance as a whole. HMRC argued that the UT erred in determining whether the Vivaro was “primarily suited” to the conveyance of goods as per the 2003 Act.

Appearance is not the test

In her opinion, with which Patten LJ and Richards LJ agreed, Lady Asplin addressed the question of what a “goods vehicle” is, saying: “I agree with the UT that the fact that a vehicle may look like a van is not conclusive. Appearance, or apparent structure, as it is termed in the grounds of appeal, albeit a factor to be taken into consideration when applying the statutory test, is not the test itself.”

She continued: “It seems to me that when construing and applying the definition of ‘goods vehicle’, there is no reason to begin with an original design, if there is one, and to seek to identify fundamental changes to it.”

She continued: “The fact that a manufacturer may have started with a basic design for a vehicle and adapted it for a variety of purposes to create different vehicles is not relevant to its construction. The construction is that of the final article.”

On determining the primary suitability of a vehicle, she said: “When seeking to carry out an evaluation, it is misleading to look at each feature of a vehicle separately and to determine whether that feature is more typically found in one type of vehicle or another. Not only is ‘typicality’ not the relevant statutory test but also a feature may be typically found in a van because it is suitable for the conveyance of goods, such as strong brakes, but may not detract from another suitability. The presence of such a feature does not necessarily mean that the vehicle is ‘primarily suited’ to one use or another.”

She concluded in relation to the Vivaro: “It is not sufficient, as both the FTT and the UT held, to conclude ‘on a narrow balance’ or by a ‘fine margin’ that a vehicle’s construction is ‘primarily suited for the conveyance of goods’. Furthermore, the UT was wrong to hold that the FTT’s application of a ‘typicality’ test did not lead it into error.”

In relation to the Kombis, she said: “In my judgment, neither the FTT nor the UT failed to construe [the 2003 Act] and the definition of ‘goods vehicle’ correctly in the way which Mr Gardiner suggested. Furthermore, neither the FTT nor the UT erred in their approach to the construction of the Kombis in the way which Mr Gardiner submitted they had.

For these reasons, HMRC’s appeal in respect of the Vivaro decision succeeded, while the taxpayers’ appeal in respect of the Kombis was refused.