Company van tax: understanding the rules
Van drivers need to pay tax, and we explain all the requirements from HMRC for fair use and tax payments for light commercial vehicles
While company cars are taxed on a sliding scale, based on a combination of list price and CO2 emissions, the tax rates for vans are far simpler. However, there are still factors to consider, because depending on how you use your van, Her Majesty's Revenue & Customs (HMRC) will want you to pay different kinds of tax on it. There are many different types of vehicles that are registered as vans nowadays and it can be difficult to determine how much tax you or your employer should pay.
The simplest form of van taxation is when you use a van for work and what HMRC describes as ‘insignificant private use’. If this describes how you use your van, then you won’t have to pay any tax at all. That’s because HMRC classes the van as having no Benefit-in-Kind (BiK), so it's not seen as a taxable perk that's provided to you by your employer or via your company. However, if you do drive a van for what is defined as 'private usage' you will be required to pay BiK company van tax.
What is a van?
Before you get into calculating whether you will need to work out your van tax bill, you need to know the definition of a van for taxation purposes. It might seem obvious, but for the record, these are the criteria that HMRC uses to classify vans and light commercial vehicles (LCVs):
• A vehicle primarily constructed for the conveyance of goods or burden• A gross vehicle weight - fully laden - not exceeding 3,500kg
If you’re unsure whether your vehicle is a van, the v5c logbook for the European classification - N1 and N2 are taxed as vans whereas M1 and M2 are taxed as cars. Work buses and minibuses are not vans, because they are designed to carry people. Double-cab pickups may or may not qualify, depending on various criteria - see below.
What is ‘insignificant private use’?
Insignificant private use sounds like a vague definition, but HMRC has a strict list of criteria to meet this statement. Basically, commuting directly to and from work is covered, although you can stop off en route to pick up a newspaper, or take a one-off trip to the dentist. But that’s about all you’re able to get away with.
Regular shopping trips or school runs, or taking the van out in the evening are all regarded as significant private usage. If you drive your van in this way, then your company is legally obliged to notify the taxman. Your employer is also likely to keep mileage records detailing your journeys – whether private or work – in order to keep on the right side of the tax inspectors if and when they call.
Company van tax rates
You may think using a van for private use is a cash cow for the tax man, but you can pay far less in tax for a van than you might do for a company car. That’s because vans don't have to meet the same variable scale of taxation that company cars are subject to. Instead, there's a fixed Benefit-in-Kind rate for van drivers – and that value is set at only £3,170.
What is Benefit-in-Kind?
Benefit-in-kind or ‘BIK’ is a taxation against any perks an employee receives from an employer - in the case of vans this is usually in the form of use of a van for private journeys.
For 2019, the BIK rate for vans is set at £3,430 and will likely rise in line with the consumer price index for 2020. It’s important to remember that vans used exclusively for business journeys are not subject to BIK tax.
How much van tax will you pay?
The amount of company van tax you’ll pay is simply your personal rate of tax times that fixed BIK value. So for a 20 per cent taxpayer it’s 20% times £3,170, which gives an annual figure of £630 – or £52.50 per month. 40 per cent taxpayers will pay double for obvious reasons.
Company van drivers also benefit from a very generous fixed Benefit-in-Kind rate for any private mileage fuel paid for by their company. This is set at £598, and again you simply multiply it by your tax rate to find the amount due to HMRC.
For 20 per cent taxpayers, that’s 20% times £598, which gives an annual figure of £119.60 – or just under a tenner a month, regardless of how much fuel your company supplies. Again, 40 per cent taxpayers will be charged double.
What about electric van tax?
Perhaps unsurprisingly, it’s cheaper to tax an electric van. Currently, the BIK is 40% of the normal rate for conventional combustion-engined vans. This incentive is unlikely to last much longer as the percentage will increase until it matches the tax rate for regular vans - projected for 2022. However, the annual road tax and Van Fuel Benefit Charge for electric vans should stay at £0.
Double cab and crew cab pick-up tax rules
The same company van tax principles, and fixed BIK rates, apply to four-door, four-seat pick-up trucks in the UK, but there’s an extra level of complication. HMRC has certain guidelines that any pick-up must meet in order to be classified for tax purposes as an LCV. Essentially, any vehicle that has more than one row of seats (as pick-ups do) must have a one-tonne payload capability to be classified as a light commercial vehicle.
To find out more about the latest company van tax rules for pick-up trucks, click here...