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The Employee Guide To Company Van Tax

Our employee's guide to company van tax provides employees with easy to read, easy to use information to help you make the right decisions in the area of company vans and van fuel allowance.

Information is provided as a guide only. Select Car Leasing cannot be held responsible for any personal or business decisions made as a result of information provided in the guides.

As with all aspects of taxation, it is the responsibility of individuals and businesses to understand the rules and regulations and act accordingly. As personal and business circumstances can vary, it is also advised that you take professional accounting advice before making a final decision.

Introduction To Employee Company Van Tax

We explain what a company van actually is, what the tax implications are, the rules of use, employee's responsibilities, plus we provide a summary of the benefits, drawbacks and key points for consideration.

Looking for information and guidance on the employer perspective? Read our employer guide to company vans, company van tax, mileage/fuel allowance.

What is Company Van Tax/BIK?

‘Company van tax’ is one form of BIK or ‘benefit in kind’ tax. It is a tax payable by employees who receive personal benefits or perks on top of their salary. If you’re being offered a company van (whether it be owned or leased) by the business you work for and the van will be used to any degree for your own private/ personal use, then as an employee, you’ll have to pay company van tax (BIK) on it.

Taxation And Vehicle Usage

Usually, company vans are given to employees for combined business and private use, however on occasion they are given for business-use only. The tax implications for employees who have been provided with a company van differ considerably, depending on what type of journeys the vehicle is used for.

Although a somewhat difficult test to pass, if your employer can demonstrate the vehicle is ‘not available for personal use’, there will be no BIK (company van tax) payable by you the employee. The ‘pass or fail’ test the HMRC applies, is whether the vehicle is ‘available for private usage’. In addition, the vehicle must also be insured for business-only usage. 

These rules also apply to vehicles that are pool vans (i.e. where more than one employee is using the vehicle). Again however, such strict business-only of vehicles is unusual.

If, on the other hand you use the company van for a mix of business and private use, then the HMRC views this as a bonus of your employment and you must pay BIK on it. The amount payable by you, the employee, is usually deducted from your monthly salary/wages.

How To Calculate Employee Company Van Tax/BIK

The BIK amount payable by an employee for a company van with mixed business-private use is determined by both the current flat-rate van benefit charge set by the Government as well as by your personal tax bracket.

The flat-rate van benefit charge for the tax year 2020/2021 is set at £3,430 and, unlike for cars (where the tax is based on a scale of CO2 emissions and the list price of the car) is a fixed rate. 

The employee BIK rate payable can be calculated by simply multiplying the flat rate for vans by your personal tax bracket (e.g. 20%, 40%), to give the amount that will be deducted from your salary or wages each month, e.g.:

  • £3,430 (the current flat-rate van benefit charge) x 20% (our theoretical employee’s tax bracket) = £686 (the amount payable in BIK by you as the employee)

Electric Vans

The flat-rate BIK payable is even lower if the van happens to be an electric one, where the rate is set at just £2,058 for the tax year 2020/21. 

Again (as with the previous calculation), the employee/Director simply multiplies this rate by their personal rate of income tax to find the amount of BIK payable for that year.

Van Tax Exemptions

There are circumstances however where employees may be exempt from having to pay employee-payable BIK on their company van, and these are as follows:

  • Where the vehicle is used exclusively for business, the employee keeps a mileage record and signs an agreement stating the van has had no private usage
  • Where the employer is the proprietor of one of the following: 
    • A Partner or Partnership 
    • A Self-Employed Person or Sole Trader 
    • A Limited Liability Partnership (LLP)
    • A Charity, Embassy, Local or Government Authority 
  • Where the employee pays/repays their employer for any (non-permissible) private use of the van, effectively making the van business-use only 
  • Where the vehicle has been adapted for an employee with a disability (even if used for mixed business-private purposes) 
  • Where the employee earns less than £8,500 a year (even if used for mixed business-private purposes)

Van Tax Minimisation

There are also a number of circumstances where employees may be able to reduce the amount of BIK payable on their company van:

  • Where the van is electric (the flat rate for 2020/2021 for an electric van is just £2,058 p.a.)
  • Where the van is not available for the employee to drive for 30 consecutive days (this situation reduces the van tax payable)
  • Where there is any contribution received by the employer from the employee (this reduces the net benefit and therefore the tax payable on it)
  • Where the employee pays for all fuel (and does not accept any reimbursement from their employer)
  • Where the vehicle is a pool van (i.e. used by more than one employee) and used exclusively for business purposes (with allowable ‘incidental’ private usage). In this case the flat rate of £3,430 is divided by the number of drivers and each pays their share

NB: To be classified as a pool van, the HMRC states that the vehicle must:

  • Be made available to and used by more than one employee
  • Be required for the employees to do their job
  • Be used solely for business purposes (allowable ‘incidental’ private usage is permissible)

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