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The Employer Guide To Company Van Tax
Our employers’ guide to company van tax (or ‘van benefit charge’ to use the correct term), explains everything you need to know, including tax by van body type, how usage affects van tax, how the tax is calculated and ways you can potentially reduce your company van tax bill.
Business Types Offering Company Vans
Importantly, a ‘company van’ can be offered by many types of employer - not just ‘companies’. Types of businesses include sole traders (and other types of self-employed persons), Limited Liability Partnerships (LLP), charities, embassies, local or government Authorities, Limited Liability Companies (LTD) and Public Limited Companies (PLC).
Whether or not your business and employees need to pay van tax will depend largely upon the following four factors.
4 Factors Determine If Van Tax Is Payable
1. Whether the vehicle is classified as a ‘van’ (according to the HMRC definition)
2. The type of business you are and whether you're subject to company van tax
3. Whether there is any private usage of the van (and whether this is considered ‘significant’ or not)
4. Whether any tax exemption or reduction scenarios apply to either the van and/or driver
Definition Of A 'Van' For Tax Purposes
Vans come in a wide range of shapes and sizes, but to take advantage of the HMRC’s favourable van tax rates, your vehicle will need to be deemed by the HMRC to be ‘a van’ (and not a car or vehicle designed primarily to carry people), otherwise you could end up paying a lot more tax than you expected. This could be the case if you’re considering a double-cab pick-up truck, a car derived van or a minibus/work bus.
According to the HMRC, company-payable van tax and employee-payable BIK only applies to vans, pick-up-trucks or light commercial vehicles (LCVs) that:
• Are primarily constructed for the conveyance of goods or burden
• Have a gross vehicle weight not exceeding 3,500kg (when fully laden)
Any vehicle not compliant with the above guidelines will not be classified as a van and may be subject to other taxation rules.
Double-Cab Pick-Up Trucks
A double-cab pick-up truck is a car-van hybrid vehicle with an enclosed cabin and an open cargo area with low sides and a tailgate door. It features 4 doors and 2 rows of seating to carry up to 6 people (including the driver). Whilst single-cab pick-up trucks fall within the HMRC definition of an LCV, the rules aren’t that clear for double cab pick-up trucks.
Double-Cab Pick-Up Requirements
To fall under the LCV banner, a double-cab pick-up must have a payload of at least one tonne (including its hardtop cover). If the total payload falls below one tonne, then company vehicle tax rules apply - which could see you paying much more in tax, so make sure you think carefully about whether you really need that extra row of seating.
Car-Derived Vans
Car-derived vans have the body of a car but - under the HMRC's classification - qualify as a ‘van’. As a result they may be more likely to be subject to more favourable van taxation rules. To be classified as a car derived van a vehicle must comply with the following.
Car-derived Van Requirements
- Have had their rear seats, seatbelts and mountings removed
- The rear part of the vehicle must be fitted with a floor panel (i.e. a payload area)
- The rear side windows must be opaque
Business Entity And Company Van Tax
Regardless of what the van is used for (i.e. even if it is used for ‘significant’ private usage), there are some types of businesses that will not have to pay company van tax. These business types are:
• The Self-Employed Person or Sole Trader
• Partners or Partnerships
• Limited Liability Partnerships (LLP)
• Charities, Embassies, Local or Government Authorities
If you are one of the following business types however and the van in question has any private usage (other than ‘insignificant’ trips), then both you the employer and the employee will need to pay company van tax:
• Limited Liability Companies (LTD)
• Public Limited Companies (PLC)
Van Useage And Company Car Tax
Under UK law, when a business provides an employee (or director) with anything that provides them with a ‘personal benefit’ (other than a personal benefit stated by the government as allowable), this is seen as providing a bonus of employment, and both the business and the employee must pay tax on it.
The tax the business pays is known as ‘company van tax’ (or NIC/Class 1A National Insurance Contributions), and the tax the employee (or director) pays is known as ‘benefit in kind’ tax or BIK (usually deducted from their monthly salary/wages).
Usage That Is Company Van Tax Free
The rules for company van usage are more lenient than those for company cars in that they permit specific types of private usage termed as ‘insignificant’. ‘Insignificant’ private usage is use that is neither routine, patterned nor extended in length, for example a one-off stop to pick-up a newspaper whilst on the road for business.
The following types of van usage are generally not subject to company van tax (nor employee-payable BIK):
- Business journeys
- Normal commuting (to and from home)
- ‘Insignificant’ private journeys
Usage That Attracts Company Van Tax
In contrast, any type of private travel that is patterned, regular or extended will attract company van tax (as well as employee-payable BIK tax), for example, using the van for:
- Routinely taking children to school
- Holiday trips
- Taking family or friends to the airport
- Regular non-business shopping trips
If a van is used purely for business-purposes (with permissible ‘insignificant’ private usage), this will not require the business to pay any tax on the vehicle by the company (nor the employee).
Remember, in addition to company van tax, both the employer and the employee may be subject to ’van fuel tax’ on any fuel or mileage allowance given by the business and used for private journeys (more on this later).
Company Van Tax - Amounts Payable
Employer-Payable Company Van Tax/NIC
The amount of Class I NIC (national insurance contributions) payable by an employer on a company van provided to and used by an employee (or director) for mixed private and business use, is calculated by multiplying the annual percentage rate for class 1A NIC (currently 13.8%) by the total value of the benefit (i.e. £3,430 for fuel driven vans and £1,340 for electric vans) e.g.:
- 13.8% (the current 1A NIC percentage rate) x £3,430 (for a fuel driven van) = £473 (the annual amount of Class I NIC payable in tax by the employer)
Employee-Payable Company Van Tax/BIK 20
Unlike employee-payable benefit in kind (BIK) for company cars (where the car’s CO2 emissions, engine type, P11d value and employee’s personal tax bracket are all considered), when calculating BIK payable on a company van, a single flat-rate applies, which is currently set at £3,430 for the 2020/21 tax year.
To calculate employee-payable BIK on a van that has private usage (other than that deemed ‘insignificant’ ) the flat rate of £3,430 is simply multiplied by the employee’s/ director’s personal rate of tax (e.g. 20% or 40%). For example:
- £3,430 (the current BIK rate for vans) x 20% (our theoretical employee’s tax bracket) = £686 (the annual amount payable in BIK tax by 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 £1,340 for the tax year 2018/19. Again (as with the previous calculation), the employee/Director simply multiplies this rate by their personal income tax to find the rate payable for that year.
As discussed earlier, if you’re considering either a double-cab pick-up truck, a car-derived van or a minibus/work bus then make sure you read and understand how these will be taxed.
Reducing Company van Tax
Van Tax Exemption
Businesses may be exempt from employer-payable company van tax (and employees from BIK) in any of the following circumstances:
- Where the vehicle is used exclusively for business, the employee keeps a detailed mileage record and signs an agreement that the van had no private useage
- Where the employee pays/repays the employer for any (non-permissible) private use of the van, so 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
Businesses may be able to reduce employer-payable company van tax (and employees the BIK payable) in any of the following circumstances:
- Where the van is electric (the flat rate 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 any contribution is 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
- Where the vehicle is a pool van (i.e. used by more than one employee) and used exclusively for business (with allowable ‘incidental’ private use). Here, 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)
