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The benefit rules for company vans explained
19 November 13 | By: Jas Jhooty
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What is a company van?
A van is a vehicle primarily built to carry goods or other loads which has a maximum laden weight of 3,500 kgs. This definition excludes Heavy Goods Vehicles. A company van is a van made available to an employee and which they do not own.
When is there a tax charge on a company van?
Employees pay tax on a company van if they or a member of their household/family makes significant private use of it. Insignificant private use is where the employee uses the van mainly for work journeys and the vast majority of private use is ordinary commuting.
Examples of insignificant private useInsignificant use is meant to be very much the exception to normal use and has to be intermittent, and should only last for short periods on odd occasions in the year. HMRC have provided the following examples: -
- Taking an old mattress to the tip a couple of times a year.
- Regularly making a slight detour to purchase a newspaper at a local newsagent on the way to work.
- Calling in at the dentist on the way home from work.
Examples of significant private use
- Regularly taking the van to the local supermarket
- Using the van for annual holidays
- Using the van outside of work for social activities
These HMRC examples appear to be quite contradictory. Why should making an ordinary commuting journey and stopping at a local newsagent regularly to buy a newspaper be classified as being insignificant while going to the local supermarket on a similar ordinary commuting journey to purchase the same newspaper be classified as being significant?
Those of us who are cynical can only surmise that the only difference between the two events is purely from a HMRC compliance perspective. We know that HMRC compliance inspectors regularly check registration numbers of any vans they find parked in supermarket car parks and then perform a DVLA search to see who the van is registered to. If the registered keeper of the van is a company they go on to check whether or not any associated company van benefits have been declared on their employees’ P11Ds. If not an Employer Compliance Review is usually launched.
What are the taxable benefits arising?
There are two charges applicable relating to company vans deemed to be taxable because of significant private use. There is currently a £3000 benefit-in-kind charge relating to the company van itself and the £564 van fuel benefit charge for higher paid employees (over £8,500) and directors. Both of these charges can be reduced for availability and for any periods of shared use. The van benefit can be reduced by any private use contributions the employee may make but please note that the van fuel benefit remains an all-or-nothing charge (similar to the car fuel benefit). This means that for an employee to avoid the charge they must reimburse the full cost of all private fuel.
What records should be kept?
If the employer and the employee want to avoid any benefit charges associated with company vans and/or company van fuel they must keep sufficient records to show that the van is mainly used for work journeys and ordinary commuting.
HMRC will want to see evidence of what steps the employer has taken to prevent significant private use. Employers are recommended to either include the relevant conditions in employment contracts related to the use of the company van or get company van drivers to sign a statement acknowledging the company policy on what is allowed and also detailing any disciplinary measures that will be taken if the employee fails to adhere to the policy.
Mileage records will also have to kept and the employer will have to be able to provide evidence of any days the van was shared or unavailable to the employee along with details of any private use contributions made by the employee.
How emTax can help
As experts in all areas of employment tax our consultants can review your current company van policies and associated records to ensure that they are up to scratch to fend off any HMRC queries. If they are found to be lacking we can advise on ways to make these policies audit-proof.
For more information about this or any other employment tax matter please do not hesitate to contact us.