So, you want to buy a van huh? This summary briefly looks at some of the tax implications of purchasing a van through a limited company (i.e. the company will legally own the vehicle).

It sounds silly but first of all we need to look at the definition of a van for the purposes of tax legislation. As always this is not so straight forward and depends what legislation we look at.

For income tax purposes a van is defined as ‘a mechanically propelled road vehicle which is a goods vehicle weighing not more than 3.5 tonnes’. Legislation goes on to describe a van as ‘a vehicle of a construction primarily suited for the conveyance of goods or burden’, with the additional following stance from HMRC …
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~ The test is applied at construction of the van
~ A vehicle designed and marketed as a multi-purpose vehicle is unlikely to be a van
~ A vehicle with side windows behind the driver and passenger doors, is unlikely to be a van, particularly if fitted (or capable of being fitted) with additional seating behind the driver’s row of seats.

For example, in a recent case it was deemed that both the Vauxhall Vivaro and Volkswagen Transporter Kombi models were considered cars by the fact they were capable of carrying both goods and people, therefore not ‘van like’ enough and would be taxed like a car. All of these vehicles look like vans so it is essential to make sure you know what you are buying in advance, to avoid any unwanted surprises.

Once you know what you are purchasing it is nice to know the purchase of a van qualifies for capital allowances and more specifically the annual investment allowance (AIA).

The AIA gives a 100% allowance for investment in plant & machinery up to the annual limit, in the year of purchase. From 1st January 2019 this limit is £1,000,000. The allowance is there to encourage businesses to invest in plant and machinery for use within their business. The allowance allows any qualifying investment (up to the annual limit) to be deducted in the calculation of taxable profits.

In terms of a van purchase, say your company had taxable profits of £50,000 before the deduction of any capital allowances and also purchased a van for £8,000. Using current rates, the calculation would look like this;

(£50,000 - £8,000) * 19% = £7,980 corporation tax (being a saving of £1,520 if the AIA was not available)

Where a van has been acquired through a Hire Purchase agreement (HP) capital allowances are available in the normal way on the capital value of the van (i.e. the purchase price) and as such receive full tax benefit under the annual investment allowance in the year of purchase.

The only difference here is that any interest payments will need to be separately identified from the capital repayments towards the van and that interest payments can be deducted when calculating corporation tax for the year.

It is worth pointing out that this treatment is only the case for HP agreements and not relevant for the lease of a vehicle. The key difference being that under a HP agreement the asset legally changes hands at the outset and becomes the property of the business whereas a lease is in effect just the rental of a vehicle meaning no capital allowances would be available.

A benefit in kind (BIK) can be thought of as an asset or service provided to employees at the expense of the company. Where an individual receive anything from their employer company which benefits them personally, and it is not ‘wholly, exclusively and necessary’ for the purposes of the business, it is likely the employee has received a benefit in kind which will be taxable.

The employee is assessed on the cash equivalent value of the benefit received and subsequently at the recipient’s marginal rate of tax (i.e. the rate of tax the taxpayer normally pays tax).

In terms of a van for the 2019/2020 tax year, where an employer allows an employee exclusive and unrestricted private use of the vehicle (with CO2 emissions greater than 0) the cash equivalent BIK value is a flat rate of£3,430. This figure can be reduced proportionally if the period of availability is less than the full tax year.

Where free or subsidised fuel is paid for by the employer an additional flat rate benefit for 2019/2020 is assessed on the employee of £655.

In simple terms a basic rate taxpayer that received the benefit of an unrestricted van including fuel, for the full tax year would be subject to the following additional tax liability;

(£3,340 + £655) * 20% = £799 additional income tax

It is also worth mentioning that benefits in kind are subject to class 1a National insurance contributions meaning the employer will be liable for increased national insurance contributions of 13.8% on the value of benefits provided. Using our example above the employer would be subject to the following additional national insurance contributions;

(£3,340 + £655) * 13.8% = £531 additional class 1a N.I.

So, is there any good news for providing vans as a benefit for employees?

Well actually there is. Provided an employee’s private use of the van is ‘insignificant’ then the BIK goes away and there is no additional income tax to pay by the employee as well as no additional national insurance contributions levied on the employer.

In addition, one little know difference here between vans and company cars as a benefit in kind 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 kind charge.

To summarise where a van is provided to an employee, as long as the van is only used to drive to and from the normal place of work and any other private use is insignificant (say picking up a cup of coffee on the way to work) there would be no benefit in kind assessable and therefore no additional income tax or NI to pay.

It is widely understood that businesses can claim back the input tax back on any commercial vehicles such as a van provided the vehicle is used for business purposes and presuming HMRC also consider your van purchase to actually be a van.

Where a commercial vehicle such as a van has an element of personal use, as described in the above benefit in kind section it is important that the amount of any input tax reclaim is adjusted using a just and reasonable basis.

Occasional and insignificant private use of a company van would not warrant such an adjustment and the full input tax would be reclaimable.

Quite simply vans and cars are exempt from capital gains tax and therefore can be ignored for these purposes.

As always nothing is straight forward when it comes to dealing with HMRC. This article has been prepared to give an overview of the complications and considerations of purchasing a van (or whatever the tax man wants to call it) through a limited company, however it is not provided as an alternative to thorough professional advice. If you need some help untangling the best option for your company feel free to get in touch.