What is company van tax?
Van tax is different to car tax, so it's important to understand exactly what's what before you lease an LCV. Some parts of the government's van taxation system are simple, while others can leave you scratching your head, but our guide covers the nitty gritty.
What is classed as a van according to HMRC?
Most conventional LCVs that weigh no more than 3,500kg fall under the van category for tax purposes, so if you have something like a Ford Transit, then HM Revenue and Customs (HMRC) considers it a van. There are some grey areas, though, such as pick-up trucks, passenger vans with extra rows of seats and small car-derived vans such as the Ford Fiesta van, some of which might be considered a car for tax purposes.
If you're in doubt, check the vehicle's V5C registration document and look for the European classification. If this is listed as N1 or N2 then the vehicle is classed as a commercial and taxed as a van; if it says M1 or M2 then the vehicle is considered 'dual purpose' and treated as a car. There's also advice about how to identify a car-derived van or dual-purpose vehicle on the government's website.
How much does van road tax cost?
The good thing about van road tax or VED is that it's a lot more straightforward than car tax. It's charged at a flat annual rate of £260 for new vans in the 2019/2020 tax year, which is a lot simpler than the emissions-based system for cars.
It's cheaper if you have a slightly older van, as a year's VED for Euro 4 and Euro 5 vehicles registered between 1 March 2003 and 31 December 2010 costs £140. However, if your van was registered before 1 March 2001 then it's taxed based on the size of its engine; it currently costs £160 a year for an engine up to 1549cc and £265 for anything larger than that.
The government conducted a consultation on van VED in 2018 and, although it has yet to confirm its plans, it has suggested that it will introduce an emission-based road tax system for vans in 2021, which would make it similar to the current car tax system.
How is company van benefit-in-kind tax calculated?
Benefit-in-kind (BIK) is what employees have to pay when they get a perk from their company ' in this case, the use of a vehicle for private journeys as well as business trips. Once again, vans are more straightforward than cars, because the 2019/2020 BIK rate is a flat £3,430 per year, and you pay either 20% or 40% of that figure based on your tax bracket.
For a 20% tax payer, it costs £686 per year, which means HMRC will deduct £57.17 per month from your salary. If you're a 40% taxpayer, it costs £1,372 per year or £114.33 per month.
Van Fuel Benefit Charge 2019/20
If you use a van for private journeys and your company pays for the fuel, then you'll be taxed on it; this is known as the Van Fuel Benefit Charge.
It's set at £655 for the current 2019/2020 tax year, but you don't have to pay the whole thing; as with benefit-in-kind tax on the vehicle, you pay 20% or 40% of that figure according to your tax band. That means a 20% taxpayer will pay £131 a year or £10.92 per month and a 40% taxpayer will receive an annual charge of £262 or £21.83 a month.
Tax on zero-emission/electric vans
There are some good tax incentives for electric vans, the best of which are VED and the Van Fuel Benefit charge, both of which are free for electric/zero emissions LCVs.
Benefit-in-kind tax is much cheaper for electric vans. For the 2019/2020 tax year, it's charged at 40% of the standard £3,430 fee, which means it's £1,372 per year. That means a 20% taxpayer will be charged £274.40 per year or £22.87 a month and a 40% taxpayer will shell out £548.80 a year or £45.73 each month.
VAT and vans
You can reclaim the VAT you paid on a van purchase if your company is VAT registered. If the vehicle is only used for business purposes, then you can claim back 100% of the VAT.
However, you won't be able to reclaim the total amount if it's also used for private trips, as HMRC will only allow you to claim back an amount of the VAT proportionate to business use. For example, if you use the van for work trips 50% of the time, then you can claim back 50% of the VAT.
Self-employed status and van tax
You can claim a number of van-related expenses if you're self-employed and use your vehicle for work. According to HMRC, the following costs are acceptable:
- Vehicle insurance
- Repairs and servicing
- Hire charges
- Vehicle licence fees
- Breakdown cover
You can't submit fines or travel expenses between home and a permanent place of work (i.e. commuting) nor can you claim for personal/non-business travel costs.
Double-cab pick-up tax rules
Pick-up trucks can be a grey area for taxation. Those that have a payload capacity of more than 1,000kg are considered light commercial vehicles and taxed in the same way as a normal van.
However, not all pick-ups are classed as vans for tax purposes (the V5C certificate will tell you for sure ' see What is classed as a van according to HMRC? above) and therefore may not be subject to benefit-in-kind tax. Double-cab pick-ups often fall into this category, which ' along with their creature comforts and five-seat interiors ' make them attractive to drivers.
What is 'insignificant private use'?
If you only use a van for business then you don't have to report it for taxation purposes, nor do employees have to pay benefit-in-kind. HMRC defines this as journeys 'made as part of work (such as a service engineer travelling between appointments)' and trips 'to a temporary workplace'. The same applies to pool vans, which is where the vehicle can be used by multiple employees and is typically kept on the company's premises.
HMRC also says vans can be used for what it describes as 'insignificant private use' without incurring any additional taxation; it describes this as 'making a slight detour to pick up a newspaper on the way to work, for example'. However, if employees drive the van outside of business hours for personal reasons ' such as a leisure trip at the weekend ' then that is classed as personal use, which means you have to report it for taxation purposes and the worker has to pay benefit-in-kind.