Most people are aware that if you get a company car as part of your employment, the car will create a taxable benefit in kind. The employer is probably not going to be able to recover any VAT on its purchase either because HMRC will usually view that it is available for private use.
However, what happens in the scenario where your employer provides you with a company van?
HMRC doesn’t have just one definition of what a van is: there are differences between the employment-related taxes and VAT descriptions. And just because a vehicle may be classed as a van under one of the descriptions, it doesn’t mean that it will automatically qualify as a van under the other.
Assuming that a van is purchased, what tax benefits/charges can the employer and the employee expect?
Employer
From an employer’s perspective, they can recover in full any VAT charged on a van purchased specifically for the business. There are no restrictions on VAT recovery even if there is a small element of private use of the vehicle. However, a VAT adjustment may be required if the private use is more than just incidental to the business use. So care needs to be taken if employees are allowed to take company vans home.
The employer may also be entitled to claim Capital Allowances on the purchase of the van, usually Annual Investment Allowance, enabling them to relieve the full cost of the vehicle against their taxable profits in the year in which it is bought.
If a benefit arises on employees for private use of the van, Class 1A National Insurance Contributions will be payable by the employer. However, it will be on a much-reduced benefit compared to cars.
Employee
If an employee has access to a company van and it is available only for business journeys, no taxable benefit arises. However, if the employee may use it personally as well, they may face a benefit charge.
Thankfully, the annual benefit for a van is £3,600, which can be reduced by a number of different factors. This makes any tax charge for using the vehicle privately much lower than a charge arising on a company car.
Additionally, if the employer pays for all fuel and they do not ask to be reimbursed for fuel used privately, an annual fuel benefit for £688 will be charged to the employee. As with the van benefit, the fuel benefit can be reduced by a number of different factors.
While you may prefer to drive around in a company car as opposed to a company van, it may be worthwhile considering the latter as opposed to the former to stop you and your employer handing over more money to the taxman than is necessary. Contact our Tax Advisory team if you’d like more information.