Van Tax Explained
Running a business comes with all sorts of responsibilities, one of which is making sure that all of the correct tax is paid. Company vehicles can lead to taxation in a few places, so it’s always better to be clear on what those are before splashing out on a new fleet of vans.
Tax can affect your employees as well as the business, so in some cases it’s important to explain the rules to those who drive your vehicles on a day-to-day basis.
Understanding the tax benefits can also make ownership of company vehicles more appealing – so read on and find out exactly what has to be declared and paid.
Company van tax – is your van exclusively business use?
Defining your van usage is important as far as HMRC are concerned. Is your van exclusively for business use or do you or an employee have access to the vehicle for personal use? If it’s the latter, then the rules for various taxes will be a little different.
Understanding the difference is important. If a company van isn’t used for private use then it will be parked at the business overnight and during the weekends – if you or an employee are taking it home then it will be considered partly personal use.
Read more: How to Save on Company Costs
This isn’t a hard and fast rule however, and there’s plenty of room for confusion regarding van use. If your van is designated business use only then it is prudent to keep mileage records and reinforce this information with your drivers by having them read and sign documentation that specifies it as such. That way, if you are ever subject to an audit you can provide paperwork to help clarify the situation.
Value added tax (VAT)
VAT on commercial vehicles is applicable to all new vans at 20%, so when you buy your new vehicle from the dealership, it will include VAT – and if you are VAT registered then this can be reclaimed by your business.
However, you can only claim back the entire VAT if the van is exclusively business use – one that’s also for personal use will only entitle you to reclaim 50%.
VAT is applied each month to your vehicle lease payment, and it is reclaimable in exactly the same way as a one off purchase payment: 100% claimed if the leased van is used for the business only, 50% if part private use.
Is there VAT on second hand vans?
If you buy a used van from a dealership or other VAT registered business then the seller will have three options regarding adding VAT:
To add no VAT only if the vehicle VAT has already been paid
To apply VAT on the entire sale price of the van
To apply VAT only to the profit made on the sale of the van
As far as HMRC are concerned, they do not mind which of the latter two options the dealership choses, if applicable, so it really is down to the seller and the way they keep their books. VAT will be clearly shown on your invoice in any case, so it is easy to reclaim, however you may want to question the dealer in advance to make sure you understand the total cost of the vehicle to the company.
Note that VAT will not be added to a used vehicle sold privately.
Like new vehicles, you can reclaim the VAT on used vans at 100%/50% depending on usage.
Vehicle excise duty – van road tax
VED (road tax) has gone through a number of changes through the years, leading to different tax systems depending on the age of your vehicle, and making the question ‘how much is my van road tax?’ a little complicated to answer. Unlike cars, which have emissions-based road tax, light commercial vehicle (vans and pickups) road tax is charged at a flat rate.
How do I renew my road tax online?
Road tax can be set up easily on the gov.uk website. You will need your vehicle log book (V5C) and can pay directly through credit or debit card or set up a monthly, six monthly or annual direct debit.
In all cases, paying the full amount annually is the cheapest option, with a minor surcharge applied if spreading the payments.
You can also pay road tax by visiting the post office.
How much is road tax on a van?
Van road tax 2019/20 is as follows:
Vans built after 1st March 2001 with a TC39 VED tax code
Covering most of the commercial vans on the road today, these vans pay £260 per year when paid annually.
Vans registered “Euro 4” between 1st March 2003 and 31st December 2006, and
Vans registered “Euro 5” between 1st January 2009 and 31st December 2010
These vans meet additional European emissions standards and have a cheaper rate of tax based on £140 per year.
Vans built before 1st March 2001 with engines 1,549cc (1.5l) or below
Smaller older vans are taxed at a base rate of £160 per year.
Vans built before 1st March 2001 with engines larger than 1,549cc (1.5l)
Larger older vans have a base VED rate of £265 per year.
Benefit-in-kind tax (BIK)
If you provide your employees with a vehicle as part of their employment package, this is considered a benefit and is taxed accordingly.
Remember – if your vehicles are for company use only, there is no BiK tax to pay.
It is the employee who pays BiK tax as part of the PAYE system. It is taken from their gross monthly pay in the same way as income tax and is charged at the same rate.
BIK for cars varies, however for vans and pickups (a pickup is classed as a van for tax purposes), it is a flat rate, currently set at £3,430 for the 2019/20 tax year.
Your employee will pay BIK tax at the same rate as their income tax band. Thus, if they are on the 20% tax band, BIK tax is 20%, and if they are on the higher rate band, it is 40%.
20% of £3,430 is £686, so an employee in the 20% tax band will pay £686 per year for their use of the company van, taken monthly from their salary as £57.17 per month.
An employee in the 40% band will pay double that, totalling £1,372 per year, or £114.34 per month.
BIK applies to any company employee who drives the vehicle in a private capacity – including the owner of the business, so if you drive the van yourself, you will be subject to the BIK tax.
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