Published: June 12th, 2019
The Van Benefit Charge is the phrase used by HMRC to describe a charge on company vans which are also used personally by the employee. Employers are liable for Class 1A NIC and P11D reporting when an employee is using a company van for personal as well as business reasons. Company cars used privately are also taxed, but the formula used to arrive at the amount owed tends to be more complex.
Company car tax is worked out based on a range of factors including the list price of the car and CO2 emissions. This often makes the tax paid on company cars much higher than the tax paid on vans, which is why many employers choose the larger vehicles for their employees.
A 2017 ruling which found double-cab (kombi) vans supplied by Coca-Cola to actually be cars for tax purposes, and thus liable to pay a hefty bill in back taxes, has got many employers and employees worried about where they stand with regards to taxation on their vehicles.
Who is liable to pay van benefit?
If you drive a van for work and use it for your personal life as well, you are most likely liable to pay a Van Benefit Charge. This is because HMRC sees this as a valuable perk in addition to your salary, meaning that you have to pay tax on it. However there are some limits to this.
If you drive your van to and from work, use it for your job and perhaps stop on the way to or from work to attend an appointment or pick something up, this is described by HMRC as ‘insignificant personal use’.
In this case HMRC would class the van as having no ‘Benefit-in-Kind’ (BiK) to pay and there is no tax bill for you or your employer. However, once the van is used for anything more than this, including school runs and shopping trips, HMRC will class this as ‘significant private usage’ and you as the driver will be liable for BiK company van tax.
HMRC has a strict list of conditions and rules on its website to help employees to be sure that they are not breaching the regulations for insignificant personal use.
What are the charges?
For 2019, company van tax benefit in kind is £3430, and likely to rise again in line with the consumer price index in 2020. Employees will be taxed on this amount at a rate which depends on whether they pay tax at 20% or 40%. This means that if you pay tax at 20% you’ll pay £686 per year, whilst someone paying the higher rate of 40% is looking at a yearly tax bill of £1372.
If more than one employee uses the same van then the £3430 benefit in kind is divided by the number of employees that use the van, and then taxed at their personal tax rate.
For most people the van tax is paid monthly and deducted straight from their salary by their employer.
How does this differ from company car tax?
Company car tax tends to be more expensive than van tax, for both you and your employer. It tends to be based on a range of different features, including:
- The car’s taxable value, which is the car’s ticket price plus VAT and delivery fees, less the cost of first registration and road tax.
- Carbon Dioxide emissions
- The fuel type of the car, be it petrol, diesel, hybrid or electric
- Your own income tax bracket.
For a standard company car, such as (for example) the Seat Leon ST, an employee who pays the 20% tax rate will be looking at a bill of around £1514 per year, compared with £686 for a van. Your employer would also have to pay national insurance contributions of around £1045 for the Seat, whilst the fixed contributions on a van are only around £500.
This makes it far more cost effective for an employer to purchase a van for you to use than a car. However, with this new ruling, employers are concerned that the goalposts have moved when it comes to what may be defined as a van for tax purposes.
What are the HMRC definitions of vans vs. cars?
- Is a good vehicle, primarily constructed for the transportation of goods or equipment
- Must not exceed three and a half tonnes, fully laden
- Should have a load bay significant enough that carrying passengers cannot be the main purpose
- Should have a load bay without any windows
- Is used on public roads and has three or more whels
- Is constructed solely for the transportation of passengers
- Has side windows or is constructed or adapted to allow the fitting of side windows
What is the issue with double-cab vehicles?
Where the confusion lies in the classification of double-cab or ‘kombi’ vans is in the second row of seats in the back of the van. Whilst there is significant space for storage and transportation, the extra row of seats which is either ever-present or can be added, could make the vehicle primarily suited to carrying passengers rather than goods.
HMRC offers clarification to help decide whether or not your kombi van is classed as a commercial or private vehicle in the following:
- If the vehicle has a load area that is bigger than the passenger area, and is unaffected by the adding of extra seats.
- If the vehicle is still able to carry goods or equipment of more than one tonne after any extra seats have been added.
If your vehicle meets these conditions then it may still be classes as a commercial vehicle and be liable for van tax reliefs. If not, then HMRC officially classes it as a car, and you need to pay tax at that rate.
2017 Coca-Cola tribunal
In 2017, a First Tier Tribunal (FTT) ruled that two Volkswagen Kombi T5 vehicles, operated and supplied by Coca-Cola, were actually cars despite having previously been classed as vans for tax purposes.
HMRC asked that the FTT look at both these vehicles and a Vauxhall Vivaro, which are outwardly very similar vehicles, to decide whether or not they were primarily suited to the transportation of goods or passengers. On analysis of all three vehicles, the FTT found that the addition of a removable bench in one of the Kombi vans, and three removable seats in the other, made these vehicles equally suited to the conveyance of passengers and goods. Under HMRC regulations, this classifies the vehicles as cars, rather than vans.
The Vivaro was also analysed but the FTT decided, thanks to a marginally larger load area, that this vehicle should be described as a van. HMRC appealed the decision, but it was upheld by the Upper Tribunal.
Coca-Cola and their two drivers were left with a hefty bill in backdated company car tax, and there is every reason to believe that other companies could be looking at huge historical tax bills on cars that they thought were vans
It has always been the case that the courts step in when clarity is needed when interpreting the meaning of unclear wording in legal statutes. This example demonstrates that it is dangerous to assume a meaning that is favourable to your particular circumstances and that to avoid a painful tax bill in the future, it would be wise to get a second opinion on these matters from a tax professional.
TFMC offer accountancy and book keeping services for companies large and small across the UK. In addition, our team of experienced accountants are on hand to offer advice and guidance in relation to any HMRC disputes that you may be involved in.
Why not call us on 0800 470 4820 or email [email protected] to find out how we can help.