Here we explain the tax treatment of company vans and the associated implications.
Company vans are generally more tax efficient than company cars because the tax treatment is different, however, to qualify as a ‘van’ it must be purpose built and not simply converted by having windows covered up etc. HMRC states that a van is defined as a goods vehicle with a maximum legal laden weight of 3,500 kilograms.
The main benefits of a company van are as follows:
- All the VAT may be reclaimed on the purchase of a van. Second-hand vans have VAT included and so VAT can be reclaimed on both new and older vans. However VAT will have to be charged on the van when it is sold though
- There is no higher tax limit on what can be claimed in the company’s tax calculation, all the cost of the van qualifies for capital allowances
- The benefit in kind values are generally lower and as such attract lower additional tax charges.
However, the employee is taxed as receiving a benefit in kind which also means the company has to pay additional class 1A national insurance. The only instance where a benefit in kind does not arise is if the van is provided only for business use (personal use is insignificant), in practice, if the van is parked at your personal address overnight etc. it would be quite hard to prove there is nopersonal usage.
Assuming the Van is used for personal use the following flat rate of taxable benefits arise:
Van Benefit: £3,000 per annum
Fuel Benefit: £564 per annum (where the employer pays for private fuel)
These benefits would be assessable on the personal tax return each year and taxed at the employee’s marginal rate. Assuming they are a basic rate tax payer (for salary only) they will pay an additional £713 in tax each year. They will also pay an additional £802 in tax if they have had dividends that were up to or above the high rate threshold before taking into account this additional benefit in kind.
HMRC may also amend the tax code to collect the tax due on the benefit in kind via salary so a standard tax code would be changed to 588L.
The employer would have to declare the company van on the employee’s P11d each year and would have to pay employer’s NI at a rate of 13.8% on the benefit in kind, this would equate to additional tax of £491.83.
All other costs associated with the van such as insurance, maintenance etc can be paid by the company without any additional tax charge on the employee, remember all invoices must be in the company name!
How can I reduce the amount of van tax I have to pay?
You can reduce the amount of tax owed, if any of the following are true:
- the van is unavailable for part of the year
- the van is shared for some or all of the year
- the employee makes payments for the private use of the van
How to calculating a reduction in van tax owed:
Below are a few examples of how to calculate your van tax reductions:
- When a van is shared, the amount of tax owed should be determined by working out the percentage that each employee used the van
So based on two employees sharing a van; who are both on the basic rate of tax.
- The total van tax figure owed would be £600.
If Employee A had used the van for 60% of the time and Employee B used it for the remaining 40% of the time.
Then Employee A will pay £360 and Employee B will pay the remaining £240.
- If there has been a period where the van was not made available toEmployee A for a period of 56 days then the following reduction can be made:
£360 x 309/365 = £304.77
Based on this formula:
CE x (Y-D)
CE is the amount of the cash equivalent before any reduction (i.e. for a full year)
Y is the number of days in the tax year in question
D is the total number of days on which either the van is unavailable or after provided fuel is finally withdrawn.
- When payments have been made by an employee towards the costs of private use:
The amount chargeable is reduced pound for pound by the amount which the employee is required to pay, and actually pays, for private use of the van. This adjustment is made after any reduction because the van is shared.
So using the example of Employee A if he had agreed to pay £100 towards fuel costs.
Then his final bill would be:
£304.77 – £100 = £204.77
How to reduce your van tax bill to zero
Employers must be able to show HMRC that their employees have not been using the van for private use in order to reduce their tax bill to nil.
Employee could be asked to:
- Keep mileage Records
- Sign an agreement about the use of the van
- have use of the van put into a contract of employment
Employers are required to:
If an employer considers there is no tax to pay, they will need to keep sufficient mileage records to show that the employee has the van mainly for work journeys and that private use is restricted to journeys between work and home.
If there is tax to pay, the employer will have to provide records identifying each van used by an employee. If the employer also believes that the tax owed is less than the full amount. They will also need to provide documentation on who shared the van and in what proportion. If the van was unusable for a period of 30 days then proof of this would also be required.
Any contributions paid by the employee towards the private use of the van.
Proof that private fuel has been fully reimbursed.
Please ensure that you advise RHJ Accountants if you provide any employees with a Company Van or any other asset.