Paying tax on the company van you use can be a daunting task if you do not understand the taxation system. Keep reading for some excellent points on how company van tax works in the UK.
In order to understand the taxation system for company vans, learning about how the HMRC defines a van is the first step. A van is defined as a vehicle developed to carry goods of a maximum weight of 3500 kilograms. For those who use vans built to carry a weight greater than 3500 kilograms, tax is not payable unless the van is being utilised entirely or mostly for private use.
Vehicles designed for the primary purpose of carrying people such as minibuses and work buses are not classified as vans. Pick-up trucks with four seats and four-doors are taxed as company vans depending on whether they meet specific HMRC guidelines. For instance, a pick-up truck must have a payload of a minimum of one tonne to acquire the light commercial vehicle classification. Additionally, if you are using a pick-up truck with a removable top cover, you must ensure that the cover does not reduce the vehicle’s cargo capacity to below 1,000 kilograms.
Types of Taxed Travel
Tax is payable under UK legislation for company vans used for purposes that cannot be classified as business purposes. In order to understand the taxation system in this area, it’s necessary to understand the types of vehicle usage that are not taxed. Business journeys, normal commuting and use that can be defined as insignificant are exempt from taxes. Among these exemptions, business journeys refer to travel for the purpose of work. Ordinary commuting involves all travel to one’s home from work and vice versa.
Additionally, insignificant travel relates to types of travel done in addition to normal commuting such as travelling to a nearby grocery store on the way home from work or stopping to buy the newspaper. Only travel that falls under the classification of private travel is taxed.
Private travel relates to using the company van to do your weekly grocery shopping, using it to pick your family up from the airport or to transport yourself and your friends to a party. Employees that use their company van for private travel must be aware that their employer is required under the UK law to notify the taxman about such private travel.
Benefits and Advantages
The good news is that the taxation system for company vans is less complex than for company cars. In the UK, drivers of company cars have to pay tax on a sliding scale that is based on the value of the car that they drive; its fuel consumption and its CO2 emissions. In contrast, tax on company vans is determined through a more straightforward system.
Additionally, employees who drive company cars have to pay more tax than those who drive company vans. The taxation system for company vans enables both employees and employers to derive numerous benefits. Employees that drive company vans can benefit from an advantageous benefit-in-kind (BIK) rate that is applicable for any fuel used for private travel that is paid by their employer. Additionally, employers can reclaim large amounts of VAT. Most companies usually write off the entire purchase cost of the van against tax.
Calculate How Much You Need to Pay
The amount of van tax you pay for your company van can be determined by multiplying your personal tax rate by the BIK value. For example, if A has a 20% personal tax rate and £3000 is the fixed BIK value, the annual figure would £600 in Liverpool.
Importance of Knowing the Requirements
While learning about the guidelines that apply to company vans can seem boring, learning about the system will help you make the right decisions in a timely manner. Learning about how company van tax works is equally important for both employers and employees (include here van insurance policies as well). Employers who understand the benefits offered through the UK system of taxation for company vans or LCVs can purchase vehicles that meet the requirements and be entitled to reclaim large amounts of VAT.
Similarly, employees that are aware of the rules in this area will know the types of journeys that are taxed, methods of reducing the amount of tax payable as well as how much tax they need to pay. For example, employees can reduce the amount of van tax they need to pay by using the following methods:
• Sharing the van with other employees: When the van is shared between several employees, the amount of tax each employee pays is determined by the percentage that each worker uses the vehicle.
• Making payments for private use: If the employee plans to use the van for private use and comes to an agreement with his or her employer to pay for this benefit, the employee will not have to pay tax on this additional use.
• Keeping mileage records and signing an agreement with the employer: The employee could give the employer evidence to show that the van was not used for private use. This information could be used by the employer to reduce the tax bill to zero.