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Company Van Tax Explained

Get in the know about Company Van Tax

Company van tax will be applied to any van belonging to or being leased by an employer that is used by employees for personal travel. It is also known as Benefit-in-Kind (BIK) tax and this explanatory guide should tell you everything you need to know about it.

When Does Company Van Tax Apply?

BIK tax applies to vans, pick-up trucks and light commercial vehicles (LCVs) made for the transportation of goods or burden.

If the van is driven exclusively for business purposes, company van tax will not need to be paid because it is necessary for performing the responsibilities of the job, rather than an added perk provided by an employer in addition to salary.

Any trip that is not made to get to a temporary workplace or part of an employee's duties is not considered a business journey by HM Revenue and Customs (HMRC) and is taxable.

If your van is used for private purposes and you are required to pay company van tax, it is important that you keep records of mileage covered for business use and personal use in the van, so that you are not overcharged.

Which Vehicles Do Not Qualify for Company Van Tax?

The same fixed company van tax rate applies to any vehicle which falls under the LCV category. There are some vehicles which lie on the boundaries of this classification, such as double cab pick-up trucks, which only qualify if they meet certain criteria.

Pick-Up Trucks

Two-seat pick-up trucks will always be categorised as LCVs, as they are deemed less suitable for private use than double-cab trucks, and will automatically be eligible for company van tax. However, a four-seat, four-door double-cab pick-up must have a gross vehicle weight of one tonne or more to be accepted as a van for the purposes of BIK tax.

4x4s and Multi-Purpose Vehicles

Most off-road, four-wheel drive recreational vehicles and multi-purpose vehicles are classified as cars because they are not designed for carrying goods and are rendered suitable for private use, although there are a number of commercial variants which could be eligible for company van tax as long as they meet certain criteria.

Work Buses and Minibuses

Company van tax does not apply to work buses and minibuses, as these are designed to transport people rather than goods, and are therefore not categorised as vans.

Company Van Tax Rates

Company van tax is more straightforward and generous than other types of BIK tax. Company car tax is calculated depending on the vehicle's value, fuel type and emissions, whereas there is just one flat rate for all vans.

The current fixed BIK rate for van drivers is £3,350, but you will not pay this full amount every year, just a portion depending on your personal income tax band. If your personal tax rate is 20%, you will pay 20% of the total £3,350, which is £670 per annum. If your tax rate is 40%, you will pay £1,340.

The uniform BIK rate of £3,350 can be reduced if the following conditions are true:

  • The employee can't use the vehicle for 30 consecutive days
  • The employee gives you money to be able to use the van privately
  • More than one employee uses the van, in which case the standard rate can be divided between them
  • The company van is a zero-emissions vehicle, in which case it will be £1,340 (40% of the standard rate)

Fuel Tax

Fuel costs paid by an employer are also considered a benefit and van drivers will be required to pay tax for this perk. Again, there is a flat tax rate for the year, which is currently £633. As with company van tax, the percentage of this you pay will depend on your income band. If your tax rate is 20%, you will pay £126.60 and if it is 40%, you will pay £253.20.

The uniform BIK rate for fuel can be reduced if the following conditions are true:

  • The employee can't use the vehicle for 30 consecutive days
  • The employer is repaid by the employee for all fuel used on private journeys
  • During the tax year, the employer stopped providing fuel

Van Tax Benefits for Employers

Giving employees access to an LCV as opposed to a company car could save them a substantial amount of money, as tax rules favour van drivers, but there are also advantages for employers paying tax on a company van.

Buying a Van

The cost of purchasing a van can be claimed as an expense against your income tax bill. The vehicle can be claimed as a capital allowance if you are using traditional accounting methods, but this may be different if you are using cash basis accounting and simplified expenses.

VAT-registered businesses can also reclaim VAT they may have been charged for on LCVs. The percentage that is reclaimable will be determined by the extent to which the van is driven for business use.

Van Leasing

Van leasing is a long-term rental agreement which comes with certain tax benefits. If your business is VAT-registered, you can reclaim up to 100% VAT back on your rental payments depending on the extent to which your van is used for business purposes. Rental payments can also be treated as a tax-deductible expense when it comes to your tax return.

Information for Employers

It is vital for employers to be aware of their responsibilities regarding company van tax. If you give your employees access to a company van for personal use, you must report this to HMRC, along with any fuel costs you cover.

You are also liable to make Class 1A National Insurance Contributions (NICs). The size of these payments will depend on the van's P11D value and BIK rate.

The responsibility for understanding the rules around company van tax lies with individuals and businesses. If you need any advice before investing in a company van, please speak to one of our experienced team members.