Van Benefit-In-Kind Rules
Inland Revenue Van Definition
A company van is a vehicle provided by an employer which is built primarily to carry goods or other loads and which has a maximum laden weight up to 3,500 kilograms. This definition excludes Heavy Goods Vehicles. A company van is a van made available to an employee and which they do not own.
Employees pay tax on a company van if they or a member of their household/family makes significant private use of it. Insignificant private use is where the employee uses the van mainly for work journeys and the vast majority of private use is ordinary commuting.
Sharing A Van
If two employees with private use share a van you should apportion the tax charge on a just and reasonable basis.
Employees will only pay tax if they use the van for private journeys other than journeys between home and work. So they will pay no tax if:
1. The only journeys made in the van are work journeys. For example, delivering goods or making calls to customers, or
2. All the journeys are work journeys and journeys between home and work.
If employees make other private journeys in the van, they will be charged tax for this. However, if this private travel is insignificant then they will still not have to pay any tax.
Private use is insignificant where it is very much the exception to the normal use, is intermittent and irregular and lasts only for short periods of time on odd occasions during the year. Examples of insignificant use include an employee who:
1. Takes an old mattress or other rubbish to the tip once or twice a year
2. Regularly makes a slight detour to drop off a child at school or stops at a newsagent on the way to work
3. Calls at the dentist on the way home.
Examples of use which is NOT insignificant includes an employee who:
1. Regularly uses the van to do the supermarket shopping
2. Takes the van away on a week’s holiday
3. Uses the van outside of work for social activities.
On the face of it, these HMRC examples can seem contradictory. Why should making an ordinary commuting journey and stopping at a local newsagent regularly to buy a newspaper be classified as being insignificant while going to the local supermarket on a similar ordinary commuting journey to purchase the same newspaper be classified as being significant?
It is probably more to do with being able to fit HMRC compliance procedures. HMRC inspectors regularly check registration numbers of any vans they find parked in supermarket car parks followed by a DVLA search to see who the van is registered to. If the registered keeper of the van is a company they go on to check whether or not any associated company van benefits have been declared on their employees’ P11Ds.
Company van tax rates
It’s not all bad news for van drivers using their company vehicles privately. There is tax payable but far less than if you drove a company car.
That’s because instead of the sliding tax charge scale applied to company cars, HMRC has a single fixed Benefit-in-Kind’ rate for van drivers – and that BIK value is set at only £3,170.
How much van tax will you pay?
The amount of company van tax you’ll pay is simply your personal rate of tax times that fixed BIK value. So for a 20 per cent taxpayer it’s 20% times £3,170, which gives an annual figure of £630 – or £52.50 per month. 40 per cent taxpayers will pay double for obvious reasons.
Company van drivers also benefit from a very generous fixed Benefit-in-Kind rate for any private mileage fuel paid for by their company. This is set at £598, and again you simply multiply it by your tax rate to find the amount due to HMRC.
For 20 per cent taxpayers that’s 20% times £598 which gives an annual figure of £119.60 regardless of how much fuel your company supplies. 40% taxpayers will be charged double.
The Keeping Of Records
Where there is tax to pay, employers will need to identify each van used by an employee.
Where employers consider that employees should pay tax on less than the full scale charge they may also have to be able to show:
1. If a van is shared, by whom and in what proportions
2. Periods of 30 or more consecutive days when a van was incapable of use
3. Contributions paid by any employee who had private use of a van.
Many employers have decided to go down the straightforward route of keeping the vans on the business premises at all times when they are not out on business use.
If the employer and the employee want to avoid any benefit charges associated with company vans and/or company van fuel they must keep sufficient records to show that the van is mainly used for work journeys and ordinary commuting.
HMRC will want to see evidence of what steps the employer has taken to prevent significant private use. We recommend employers to include the relevant conditions in employment contracts related to the use of the company van. Additionally, get company van drivers to sign a statement acknowledging the company policy on what is allowed and also detailing any disciplinary measures that will be taken if the employee fails to adhere to the policy. It seems a bit over the top but it is better to be safe than sorry.
It is of the upmost importance to keep mileage records. Additionally, the employer will have to be able to provide evidence of any days the van was shared or unavailable to the employee along with details of any private use contributions made by the employee.