A UK limited company operating in the corporate events and hospitality sector has purchased two vehicles to transport clients as part of its business operations. The vehicles are used exclusively for collecting clients from airports and transporting them between airports, hotels, event venues and other business locations. They are stored at a secure off-site facility when not in use and are not available for private use. The vehicles comprise:
(a) Volkswagen Transporter Shuttle with seven passenger seats (excluding the driver).
(b) Mercedes Sprinter with eight passenger seats (excluding the driver).
Given the seating capacities and the nature of their business use, what is the correct UK tax treatment of these vehicles? In particular:
(1) Are the vehicles treated as cars, vans or minibuses for capital allowances purposes?
(2) Would they qualify for annual investment allowance (AIA), or are they subject to the capital allowance rules for cars?
(3) What is the VAT treatment on the purchase of each vehicle?
(4) Does the exclusive business use and secure off-site storage affect any potential benefit-in-kind implications for directors or employees?
Arthur replies:
In response to questions (1) and (2), in HMRC’s Capital Allowances Manual at CA23510, it states: 'Treat small limousines, that is those with fewer than 9 passenger seats, as cars for PMA purposes.' This certainly disqualifies the Volkswagen, which must be treated as a car. Regarding the Mercedes, this is borderline. Per the nine-passenger threshold, it is a car. But since it (a) has commercial van origins, (b) a much larger body, and (c) is far less commonly used as a family vehicle, maybe it is worth inquiring of HMRC whether they would classify it as a car or not. (3) Regarding VAT, both of these vehicles have too few seats, so they will be classified as cars. (4) Regarding the benefit-in-kind rules, you have stated that vehicles are used exclusively for business; they transport clients; they are kept at a secure off-site compound; they are not available for private use. If those facts can genuinely be demonstrated, there should ordinarily be no taxable benefit on directors or employees. The crucial point is that the vehicles must not merely be unused privately; they must not be available for private use.
