A company van is a vehicle provided by an employer which is built primarily to carry goods or other loads and which has a "design weight" of up to 3,500 kilograms.
Who pays?
There is a tax charge where, because of their employment, a van is made available to a director or an employee earning £8,500 a year or more, or to a member of their family or household, and
the van is actually used privately.
Sharing a Van
If two employees with private use share a van you should apportion the tax charge on a just and reasonable basis.
The Rules
Employees will only pay tax if they use the van for private journeys other than journeys between home and work. So they will pay no tax if:
the only journeys made in the van are work journeys. For example, delivering goods or making calls to customers, or
all the journeys are work journeys and journeys between home and work.
If employees make other private journeys in the van, they will be charged tax for this. However, if this private travel is insignificant then they will still
not have to pay any tax.
Private use is insignificant where it is very much the exception to the normal use, is intermittent and irregular and lasts only for short periods of time on odd occasions during the year. Examples of insignificant use include an employee who:
takes an old mattress or other rubbish to the tip once or twice a year
regularly makes a slight detour to drop off a child at school or stops at a newsagent on the way to work
calls at the dentist on the way home.
Examples of use which is NOT insignificant includes an employee who:
regularly uses the van to do the supermarket shopping
takes the van away on a week’s holiday
uses the van outside of work for social activities.
If there is tax to pay because of private use, employees will be charged tax on the following amounts:
2006/2007
£500
Reduced to £350 if the van is over 4 years old
2007/2008
£3000
With tax on an extra £500 if they have free or subsidised fuel for private use.
From 2007/2008 an employee could be paying up to £64.16 per month if he/she is:
A standard rate taxpayer
Uses the van for private use
Receives free fuel
An employee paying the higher 40% tax rate could end up paying
£116.66 per month.
Note 1: There will be no tax to pay on free fuel where private use (other than journeys between home and work) is insignificant. The ‘insignificant rules’ above, apply.
Note 2: After 2006/2007 the age of the van ceases to be a factor in determining the cash equivalent.
Note 3: Employers will pay Class 1A NICs on the same amounts in the table.
Employee Contributions
If employee contributions to the cost of running the van are equal to or exceed the charge, the charge will be reduced to nil. In any other case, the charge is reduced by the amount contributed. However, where the employee is liable to a fuel charge, they will need to reimburse the full cost of all the fuel before that charge can be reduced to nil.
Actions You Can Take
From the above you can see that from 2007/2008 there is a substantial increase in costs to employers and employees when providing a company van which can be used privately.
Many employers have decided to go down the straightforward route of keeping the vans on the business premises at all times when they are not out on business use and including this provision in its contracts of employment for any potential van drivers.
Otherwise, for employers going down the ‘No Tax to Pay’ route there is an obligation to provide the Inland Revenue with sufficient records. The employer needs to show that private use is restricted to journeys between home and work. This may include making the conditions clear in employment contracts or asking employees to
sign a statement (Appendix1) acknowledging company policy on what use is allowed and any disciplinary consequences. Employers may also, for example, want to keep
mileage or other records (Appendix2) showing how the vehicles are used to help with this.
Where there is tax to pay, employers will need to identify each van used by an employee.
Where employers consider that employees should pay tax on less than the full scale charge they may also have to be able to show:
if a van is shared, by whom and in what proportions
periods of 30 or more consecutive days when a van was incapable of use
contributions paid by any employee who had private use of a van.
All of the documents can be obtained from us in a word format, so that they can be personalised and edited to suit your company or business. This service is free of charge, on request or phone 01908 262662.
Webcars is a trading style of LVC Central Ltd. | Tel: 01908 262662
