Company van tax and company car taxes are vastly different. If an employee is provided with private use of a company vehicle there are tax implications. Getting the type of vehicle wrong can cost you and the company ££££’s in taxes.
The tax implications are known as benefit in kind. They are payable by both the employee and the company.
Company cars are taxed on a sliding scale depending on list price (when new) and co2 emissions. Company van tax is at fixed flat rate. Typically a brand new double cab pickup with all the latest accessories will have a lower benefit in kind (so less tax) than a 10 year old car.
Tax definition of a company van
Company vans are much more tax efficient than company cars. So, what is a company van according to HMRC?
HMRC’s definition of a company van or light commercial vehicle is:
- A vehicle primarily constructed for the conveyance of goods or burden
- A gross vehicle weight, which is fully laden not exceeding 3,500kg
It is usually obvious whether a vehicle is a van used for carrying goods or say a bus or car which is used for carrying people.
Double cab pickups – company van tax or company car tax?
Double cabs and 4x4s now on the market are now being developed by manufacturers with the tax advantage in mind.
For these vehicles to qualify for company van tax they must also have a 1 tonne payload capability.
Most motor manufacturers have at least one executive version of these vehicles. The reason is mostly due to the tax advantages or having a luxury interior vehicle but at the lower benefit in kind taxes that are applicable to company vans.
Tip – If the vehicle has a removable hardcover top, the weight of this is not included in the 1 tonne limit. A few years ago this was an issue with some vehicles. HMRC treated these vehicles as company cars and not at the lower company van tax rates.
HMRC have a vehicle checker website which confirms whether the road tax payable is van tax or car tax. This isn’t 100% confirmation from HMRC of its tax treatment for benefit in kind taxes but it’s worth a look.
All you need is the vehicle registration number.
The vehicle details include vehicle type approval which will say M1 if it’s a car and N1 if it’s a van.
Company van tax rates 2018
From April 2018 the benefit in kind on company vans is £3,350. An employee provided with a company van which they can use personally would add this amount to their personal income.
If they are a basic rate taxpayer the tax is at 20% so an additional £670 is due. A higher rate taxpayer (earnings over £46,350) would pay at a tax rate of 40% or £1,340 in additional personal tax.
Company van tax fuel rates 2018
From April 2018 the company van fuel benefit is £633. If the company pays for all of the fuel (business and private) the employee is charged with this additional benefit in kind.
Basic rate taxpayers are taxed at 20% so an additional £126.60 is due. A higher rate taxpayer (earnings over £46,350) would pay at a tax rate of 40% so £253.20 is due in personal tax.
Company van tax for directors
The above benefit in kind rates of £3,350 for the van and £633 for the fuel is applicable to all employees including directors.
However directors are typically also shareholders and tend to have a remuneration package consisting of a small salary with larger dividends. The rates of 20% for basic rate taxpayer and 40% for a higher rate taxpayer tend not to apply.
A director earning £8,424 (optimum salary for 2018/19) with dividends of £20,000. Including a van with fuel benefit would pay an extra £368.35 in personal tax. This is substantially less than the £796 (£670 + £126), which is payable by the basic rate taxpayer above.
A director earning £8,424 with dividends of £40,000. Including a van with fuel benefit would cost an extra £1,364.10 in personal tax. This is again is less than the £1,593 (£1,340 +£253), which is payable by the 40% taxpayer above.
Benefits in kind is employment income which is taxed first. It means in the examples above that some dividends which were previously taxed at a lower band move into a higher tax band.
Company van tax without any private use
If an employee does not use the vehicle for private use then there is no benefit in kind. The personal taxes due above are avoided.
HMRC allow insignificant private use on company vans. This includes commuting directly to and from work, plus a slight diversion to pick up a newspaper. It also includes one off trips such as visits to a doctor or dentist.
It does not include anything which is considered to be regular. A weekly food shop or picking children up from school every Friday would not be considered insignificant use.
Tip – Employers should get all of their employees who have access to company vehicles to sign a form which confirms:
- that they will use the vehicle privately and understand the additional personal tax consequences or
- that they won’t use the vehicle privately (typically in this situation there should be either mileage documentation or a fitted tracker to verify only insignificant private use).
Company van tax paid by the employer
The company also pays benefit in kind taxes if it provides employees with use of company vehicles.
The rate is at the employer’s national insurance rate of 13.8%. This is payable on the same amounts mentioned previously so £3,983 for a van with fuel for each employee with a benefit.
If the private use is insignificant then the employer also does not need to make any benefit in kind payments.
Company car tax example
Take a typical company car with list price of £25,000, petrol engine with co2 emissions of 140.
The co2 emissions and petrol give a tax percentage of 29%.
The company car benefit in kind would be £7,250. (£25,000 x 29%)
If the employee is provided with private fuel then an additional benefit in kind of £6,786 is included. (fixed rate applicable to all cars of £23,400 multiplied by tax percentage above of 29%)
The total benefit for this typical car is £14,036 which is considerable higher than for our van of £3,983. If we go back to our higher rate taxpayer of 40% this is an additional £4k of personal tax payable on this car compared to a van.
Company vehicles used privately
There is no right or wrong answer as to whether you should choose to use a company vehicle privately.
HMRC have increased the taxes payable on company vehicles over the last few years. This has caused a decline in the number of employees having company vehicles.
As long as you are aware of the additional taxes which will be applicable you can make an informed choice as to whether a company vehicle available for private use is right for you.
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