Smarter accounting

Company Van Benefit in Kind trap

26 January 2020, Companies, Creative Industries, Employer, General, Musicians

Van benefit in kind tax charge

Driving a van as your company vehicle has tax advantages over a car.  The tax charge is generally low compared with a car, and can even be zero in circumstances where a car would be taxable.  What conditions must you satisfy to eliminate a van benefit in kind tax charge?

Company Van Benefit in Kind - pay no tax

Income Tax (Earnings and Pensions) Act 2003

The tax charge and regulations cover the van benefit in kind are governed by the Income Tax (Earnings and Pensions) Act 2003.  Section 154 of the ITEPA 2003 explains the private use definition

Where an employer makes a van available for the private use (other than just taking the van home overnight) of an employee (or of a member of their family or household, a taxable benefit arises.
However, the use of a pool van is not taxable, if the conditions below are satisfied.

A benefit not provided by the employer is still taxable if it is provided by reason of the employment.  For example, a car provided to a professional footballer by a car dealer would typically be a taxable benefit.

Family and household

A benefit may also arise where a payment is made to a member of an employee’s family or household by reason of the employment. “Family” is defined as the employee’s spouse, parents and children (and their spouses) and dependants.  “Household” has the same definition but also includes servants and invited guests.

What is a van?

A van is defined as any mechanically propelled road vehicle (not exceeding 3,500 kg fully laden) which is primarily suited to the conveyance of goods of any description.

  • The provision of a vehicle exceeding 3,500 kg when fully laden is usually exempt.
  • The treatment of double cab pick-ups tends to follow the VAT rules, which means that a vehicle with a payload of less than a tonne is a car for tax purposes.  The addition of a hard top will decrease the payload by 45 kg.
  • In a recent appeal, which seems to contradict HMRC’s published guidance, the Upper Tribunal held that while the Volkswagen Transporter Kombis were cars, the very similar Vauxhall Vivaros were vans.  The differentiating factor was the amount of cargo space available in the middle section of the Vauxhalls.

Pool vans

An employee who uses a pool van (one provided for mainly business purposes but which the employee is permitted to take home overnight) will not be taxed on a benefit provided:

  • the employee only uses the van for commuting; and
  • any other private use is insignificant.

If private use is unrestricted, however, there will be a benefit (even where the employee makes a contribution to the costs).  HMRC is unlikely to accept that a van is only used for commuting unless the employee has another vehicle available for private use, such as a spouse’s vehicle.

  • Private use includes such use by one employee, or where the private use of the van is shared between a number of employees.
  • HMRC has published guidance on the interpretation of insignificant, which is deemed to take its dictionary meaning of “too small or unimportant to be worth consideration”.  Examples of insignificant use would include a call at the doctor’s on the way home or regular small detours to a newsagent on the way to work.

In contrast, examples of significant use would be taking the van to the supermarket every week, taking the van on holiday, or using the van for other social activities outside work.
HMRC has suggested that an employer should be able to demonstrate that business mileage is reasonable for the type of occupation involved.

Tax free

A company van will not trigger a benefit in kind if the provision meets the “restricted private use” condition.  This means that the employee can only drive the van on business purposes, but crucially ordinary commuting between the home and workplace also counts as business travel .  This is confirmed by the HMRC Employment Income Manual.  This means that providing a company van is far better than the position for a car, where any commuting would cause any claim that the car is only used for business travel to fail.  In order for this condition to be met, any significant private use must be prohibited.

Private use agreement for company van

To avoid the company van benefit in kind trap, you will need a formal private use agreement.  This document requires the employee to sign written terms of use that prohibit any significant private use.  Any benefit in kind is reported through the company payroll.  Details of the tax charge for your employee will be reported in the annual P11D report.  For information on the payroll services that Alterledger can provide and a template private use agreement, please contact us using the form below.

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