If an employee uses the company van, will a van benefit apply?
Keith Witchell
We all know that company car tax rarely makes it tax efficient to run a company car, but what about a company van? Are the rules the same?
Let’s start with the basics. If a van is made available to an employee for personal use then a benefit in kind charge applies. Unlike with company cars, this is not based on list price and Co2 emissions, but is a flat rate amount. For the current 2017/18 tax year the benefit in kind charge is £3,230, and this will increase to £3,350 in 2018/19.
Similarly to company cars, if the employee is also provided with fuel for their personal journeys then a fuel benefit will also apply. This is also a flat rate amount of £610 for 2017/18, increasing to £633 in 2018/19.
The employee will face personal tax on these benefits in kind (which are reported to HMRC on form P11D), while the company has to pay 13.8% Class 1A National Insurance on the benefits.
However, there are some subtle differences between the rules for a company car and a company van, the most useful of which concerns restricted private use. For a company van, any journeys made to and from the normal workplace (i.e., ordinary commuting) are classed as business journeys. Those journeys do not therefore trigger the van benefit.
In addition, if any private mileage over and above ordinary commuting is ‘insignificant’ then no van benefit charge will be triggered. This therefore allows the occasional private trip to be made in the van without triggering a taxable benefit, providing such trips are rare and irregular.
To reinforce the restricted private use conditions, it is usually advisable to have a company van usage policy which all affected employees sign that states that the company van isn’t to be used for any private journeys, except where they are insignificant.
With such a policy in place, if any employee does use a company van for more personal trips than intended, then this would generally become an employment law matter, rather than a tax one, and the van benefit charge will not usually be invoked.
Key Facts
- If an employee is allowed to use the company van for personal use a tax benefit arises
- The company van benefit is a flat rate charge of £3,230 (for 2017/18)
- A separate van fuel benefit applies if all fuel is paid for of £610 (for 2017/18)
- Ordinary commuting to and from work is not classed as personal use for a van
- Restricting private use to just occasional trips will usually avoid the tax charge
For further advice on this matter please contact me.
How to reduce company car tax
Keith Witchell
Company car tax is based on the car’s list price when new, and its Co2 emissions, and with annual increases, the tax/NIC on a company car benefit can soon mount up.
So, is there anything that can be done to reduce the tax charge?
For Directors, we usually advise running the car personally and reclaiming mileage as a more tax efficient solution for all but the lowest Co2 emitting cars.
However, for employees (or Directors who still choose to run a company car) there is something that can be done to reduce the tax/NIC that applies.
As mentioned above, the company car benefit in kind is calculated by applying a Co2 emissions based percentage to the car’s list price when new. But the list price can be reduced where the employee makes a capital contribution towards the cost of buying the car. The maximum capital contribution that can be taken into account is £5,000, but for a car with a list price of, say, £25,000 this still has the effect of reducing the taxable benefit (and therefore the tax/NIC charges) by 20%.
So, I hear you ask, why would your employee want to contribute £5,000 towards the cost of the car? The simple answer is they wouldn’t! But, as it is possible to make interest-free loans to an employee of up to £10,000 without creating a beneficial loan benefit in kind, you can lend them the £5,000 tax-free, which they in turn contribute back to the company towards the car.
What’s the downside? Technically, their contribution means that they will ‘own’ part of the car (eg. 20% in the above example of a car costing £25,000). When the car is sold they would be due the same percentage of the sale proceeds but, due to depreciation, this will leave them with a loan balance owing to the company (eg. if the car is sold for £15,000 after 3 years, they will be due £3,000, leaving £2,000 of the original £5,000 loan outstanding). As the employer, you could choose to write off the remaining loan, but this write off will be subject to tax on the employee, and to NIC on the employer.
Overall though, the company car tax saving over the 3 year period that the company car is in use, will usually comfortably outweigh the tax/NIC implications of writing off the loan balance at the end of the term, particularly where the car is in one of the higher Co2 emissions based company car tax bands. The use of the capital contribution therefore works well in most cases.
Key Facts
- Company car tax is based on the list price of the car when new and its Co2 emissions
- Employees can contribute up to £5k towards the cost of the car, which reduces the tax charge
- Interest-free loans of up to £10k can be made without triggering a taxable benefit
- A loan can therefore be used to make the capital contribution and reduce company car tax
- An eventual loan write-off is subject to tax/NIC but a saving is produced overall
For further advice on this matter, please contact me.
KRW team news: Introducing Seb Lord
Keith Witchell
As KRW continues to grow we are always on the lookout for talented individuals to join the team, so that we can continue to improve our service.
We are pleased to introduce Seb Lord, who joined us last month as a Client Manager.
Seb is ACA qualified, and is currently studying to become a Chartered Tax Adviser. Seb’s career so far has seen him move from an accounts role for a Northampton practice, to a pure tax planning role. He was keen to combine both disciplines which he will do in his role as a Client Manager, alongside which he will also assist Keith and Alex with tax planning work.
Outside of the office Seb is a keen cricketer, and he also enjoys travelling and is a bit of a foodie too!
Key Facts
- Seb joined us this month as an ACA qualified Client Manager
- He is studying to become a Chartered Tax Adviser too
- Seb brings experience in both accounts preparation and tax planning
- Outside of work Seb is a keen cricketer, and also enjoys travelling and meals out
For further advice on this matter, please contact me.