Company Van Tax Explained

Benefit-in-kind (BIK) tax only applies if the van is used for private journeys. If you drive your van exclusively for business journeys or as a pool van (e.g. the van is used by more than one employee), you won’t need to pay BIK tax at all. That’s because there’s no BIK or ‘perk value’ attached to the value provided to you by your employer or through your company.

According to HM Revenue and Customs (HRMC) a ‘business journey’ is defined as a trip:

• Made as part of work (e.g. a service engineer travelling between appointments)
• To a temporary workplace

Vans used for ‘insignificant’ private journeys are also exempt. ‘Insignificant’ private use is one-off trips such as making a slight detour to pick up a newspaper on the way to work. Using your van for regular school runs, weekend shopping trips or taking your children to football practice on a week night however are not exempt and are regarded as significant private use.

If you use your van for ‘private use’ you will be required to pay BIK company van tax. Your company is also legally obliged to notify the taxman. To avoid unnecessary tax costs, it is important that you and your employer keep mileage records detailing your journeys – whether private or work – to prove how and when the van was used and whenever the cost of private-use fuel was reimbursed.

How is company van tax calculated?

Unlike company cars where drivers pay tax on a sliding scale based on the value of the car, its fuel type and its CO2 emissions, the BIK rates for company van drivers are more straightforward thanks to a single flat rate put in place by the HRMC.

It is worth noting that company van tax only applies to vans, pick-up trucks or light commercial vehicles (LCVs) which are:

• Primarily constructed for the conveyance of goods or burden
• A gross vehicle weight – fully laden – not exceeding 3,500kgs

Work buses and minibuses are not classed as vans because they are designed to carry people. Double-cab pickups also may or may not qualify, depending on various criteria.

What are the van BIK rates?

The HRMC has a single fixed BIK rate for van drivers and for 2016/2017 it stands at £3,170. The amount of company van tax you will pay is dependent on your personal income tax level. For example, if you are on personal income tax band of 20%, the amount of company van tax you will pay is an annual figure of £634 (20% x £3,170) or £52.84 a month. Those in the 40% income tax band will pay £1,268 a year or £105.67 a month.

Vehicle benefit tax

The standard BIK rate of £3,170 can be reduced if you can’t use the van for more than 30 days in a row or if you pay for your fuel to privately use the van. In instances where more than one employee has access to the van for private use, the BIK value can also be divided between them.

Fuel benefit tax

Company van drivers also benefit from a generous fixed BIK rate for any private mileage fuel paid for by their company. This is set at £598 and once again, you multiply it by your personal income tax rate to find the amount due to HRMC. For 20% taxpayers, it is an annual figure of £119.60 (20% x £598) regardless of how much fuel your company supplies

Fuel benefit tax data

BIK tax for electric vans

If your company vehicle is an electric van with zero emissions, the Government offers a subsidised BIK value. For 2016/2017 and 2017/2018, the electric van BIK value is 20% of the regular rate. This makes the total value £634 for this tax year instead of £3,170.

It is worth noting that the 20% subsidised BIK rate will be re-evaluated during the 2018 budget and is expected to jump to 40% percent. This rate is expected to continue to increase until it matches the rate for regular vans, which it is projected to reach in 2022.

Double Cab and Crew Van Pick-up Tax Rules

Any pick-up truck that is classed as a light commercial vehicle (LCV) is subject to the same flat rate tax rates as a van but for four-door, four seat double cab pick-up trucks, there’s an extra level of complication.

To take advantage of the fixed rate BIK rate for your double cab pick-up, your vehicle must have a payload of at least one tonne including any removable hardtop cover. This is the benchmark figure set by HRMC in order for your double-cab pick-up to be classified as a light commercial vehicle. Two seat pick-ups and other trucks and vans are classified as LCVs automatically, as they are not thought to offer the same ‘non-business’ benefits to their drivers.

Most of the big 4x4 pick-up trucks from major manufacturers (such as the Nissan Navara, Mitsubishi L200 and Ford Ranger) are designed to pass the HRMC payload threshold even with a hardtop included but it’s worth double checking the payload capacity of your vehicle with your sales consultant before you order to ensure you can take advantage of the fixed BIK company van rate.

Tax Benefits of Leasing a Van

• This is treated as renting the vehicle with rental payments treated as a tax-deductible expense in the profit and loss accounts when leased under a Contract Hire lease.
• If you have been charged VAT, this is also reclaimable (subject to VAT criteria being met)
• The VAT portion of the payments is reclaimable when charged.
• You cannot claim annual investment allowance if you are leasing
• If the lease is a Finance Lease, you will can offset any interest charged against the annual profits.
• When leasing under a Contract purchase, a VAT registered company will not have to pay VAT on the monthly finance payments.
• If an optional service or maintenance package is taken out, VAT is payable on the service costs.

Considerations if buying a van

• You can claim back any VAT that you may have been charged, assuming you qualify for VAT refunds under the normal VAT rules. Normally you won't have been charged when buying from a private seller, but manufacturers, retailers and dealerships will normally include it
• You can claim full capital allowances for the vehicle
• If your total asset purchases in the year are less than £200,000 in 2017, then the whole sum will be subject to the annual investment allowance
• If you don't need to use the allowances, then these can be carried forward at 20%

The amount of VAT that is reclaimable depends on how much of the vehicle’s mileage is driven for business. If its 80% business mileage, then 80% of the VAT can be reclaimed from the taxman. Many companies can also often write off the full purchase cost of the vehicle against tax.

Like company car tax, the employer has certain National Insurance and reporting obligations if they provide company vans and fuel to their employees. The employer is liable to pay Class 1A National Insurance Contributions (NICs) on the value of the benefit which is based on the vehicle's P11D value and relevant BIK rate.

As with all aspects of taxation, it is the responsibility of individuals and businesses to understand the rules and regulations and act accordingly. As personal and business circumstances can vary, it is advised that you take professional accounting advice if you are considering investing in a company van or pick-up truck.

Have a question about company van tax? Check out HRMC’s website or call Nationwide Vehicle Contracts on 0345 811 9595 to speak to one of our experienced leasing consultants.