When we talk about company car tax, more often than not we’re talking about cars. The clue is sort of in the name, “company car tax”. However, not everyone who is driving a company vehicle is sitting in a car when they’re travelling to meetings or jobs. In fact, there are quite a few who drive company vans.
So, when it comes to company car tax do the same rules apply to vans, and which ones are the best for getting a reasonable tax rate?
In this article, we take a look at company van tax, the rules, and which vans you should be looking at in order to pay low company car tax.
What is a van?
It may seem like a silly question, but it’s important that you know what is, and isn’t, considered a van as far as HMRC is concerned. So, a van is:
- A vehicle primarily that has been constructed for the conveyance of goods or burden
- A vehicle that has a gross vehicle weight when fully-laden that does not exceed 3,500kg (or 3.5 tonnes)
[Vehicles that have been designed to carry passengers, such as work or mini-buses are not considered vans. Vehicles that have been designed to carry out specialist works such as mobile cranes and hoists are also not considered vans.
Double-cab pick-ups may also qualify as vans, however, we’ll go into that in a little more detail later.
What is company van tax?
Short answer? It’s company car tax that is paid on a company van.
However, the rules on this differ slightly in comparison with a car. You will still have to pay company car tax on a van. But the rules do differ slightly.
Like a company car, you do not have to pay company van tax if you’re using your van solely for business journeys or it’s a pool van.
What is a business journey?
According to HMRC, a business journey is a trip:
- That is made part of work (such as travelling between appointments)
- To a temporary workplace
According to HMRC you can use your van for private journeys that are considered ‘insignificant’ without having to pay company van tax. These include stopping to purchase a newspaper or a coffee on the way to work.
What’s a pool van?
A pool van is essentially a vehicle that your employees share. According to HMRC, a pool van counts as the following:
- It’s available to and used by more than one employee
- It is available to employees so they can do their job
- The van isn’t reserved for use by one employee, excluding others from using it
- It isn’t generally driven to an employee’s home and stored there overnight
- The van is only used for business journeys
- Limited personal use is allowed if it is incidental to a business journey
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How is company van tax calculated?
If your company vehicle is a van and you do have to pay company car tax on it, then you will need to do the following:
- Report the cost of the vehicle on form P11D
- Pay National Insurance on the value of the benefit
However, there are some differences between how much tax you have to pay and how it is calculated. With a car, you have a sliding BIK rate which depends on several things: how much CO2 your vehicle emits, the P11D value and your personal tax bracket. This is not the case with a van. Instead, there is a fixed BIK rate, this is £3,430 (2020/2021). If you’re in the 20% tax band, then you will be paying 20% of £3,430, which is £686 per year or £57.17 a month.
Your van and private journeys
If you’re using your van for private journeys, then there is a standard value of £3,430. However, this can be reduced if:
- Your employee can’t use the van for thirty days in a row
- Your employee pays you privately to use the van
- Other employees use the van – you then divide the £3,430 by the number of employees that use the van.
Fuel and private journeys
If you’re paying for your employees’ private fuel, then you will need to pay £655 to HMRC as standard (2020/2021). This can be reduced if:
- The employee can’t use the van for thirty days in a row
- The employee pays you back the money for all their private fuel
- You stopped providing fuel during the tax year
Company Van Tax and zero-emission vans
If your company has gone green and you have been supplied with a zero-emission van, what happens? Do you still have to pay company van tax?
Even if your vehicle is green, you will still have to claim this on your P11D, however the cost is lower. You will need to report the zero-emission van on the P11D at 60% of £3,430, which is £2,058 (2020/2021).
Luckily, you’ll find that most payroll software packages have the ability to work out these reductions for you. You can also use the HMRC website in order to do this.
Company Car Tax and pick-ups
If you have a four-door pickup that can accommodate four, then the principles and fixed BIK rates apply. However, there are a few things you must consider as, in order to qualify as a company car, your pick-up:
- Must have a payload of at least one tonne – this is how much it must be able to carry to be classified as a Light Commercial Vehicle
- Payload should not be affected by the weight of a removable hardtop cover (its removal should not reduce your 1000kg payload allowance)
The good thing about it is that many 4×4 pickups are designed to meet HMRC requirements, even with a removable hardtop. They also have the luxuries you find with cars such as leather seats, sat-nav and infotainment systems.
Is it more tax-efficient to get a company van?
Is it really worth getting a company van? After all, you’ll probably still have to pay company car tax.
There are benefits to getting a company vehicle. For example, you can offset 100% of the VAT on a van if you lease or purchase it through your business. Also, if you choose to get your van on a Business Contract Hire (BCH) agreement, then your vehicle will be “off balance sheet”.
There’s also the benefit of a fixed BIK rate. This is a huge advantage compared to getting a company car. It’s one of the reasons 4×4 Pickups are becoming increasingly popular as company cars, because they count as vans and therefore qualify for the considerably lower BIK rate. Many vans and pickups emit quite a bit more CO2 than cars, meaning that if they were taxed the same way, you could end up paying a fortune in company car tax.
A van can be very tax-efficient, particularly if you are able to reduce the tax costs in any way.
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Citations
- Thomson Reuters
- Wikipedia
- HMRC
Tax rates mentioned in this article are valid as of 05/01/2021