As a general rule, VAT can be claimed on a van when the payload is 1 tonne or more, or it weighs more than 3 tonnes. In terms of having a 100% deduction for the purchase costs (AIA capital allowances), it needs to be primarily for the conveyance of goods and have a design weight of not over 3,500 kg. Also, please be mindful if the van has 4 seats; refer to the case below, which indicates that this is a grey area, particularly the car versus van issue.

N Payne, C Garbett, Coca-Cola European Partners GB Ltd Classification of vehicles supplied to employees:

The appeal concerned vehicles supplied by Coca-Cola to its employees. Until 1997, the company provided estate cars, but then it decided the employees needed vans because they had to carry more and heavier equipment than before. The decision includes a lot of information about the kind of vehicles supplied. But, in essence, the taxpayers claimed they were goods vehicles within ITEPA 2003, s 115(2). HMRC disagreed, saying they should be subject to the company car rules. The First-tier Tribunal decided the Volkswagen Transporter Kombis were cars, but the Vauxhall Vivaros were vans. Both types of vehicles have two rows of seats and a payload of more than one tonne, but the tribunal said the Vivaros should be classed as vans because of the significant cargo space available in the middle section. Coca-Cola’s appeal was allowed in so far as it related to the Vivaro, but the employees’ appeals that related to the Kombis were dismissed.

Graham Farquhar, partner at RSM, said: ‘While the decision was in favour of HMRC regarding the VW Kombis, the case detailed salient factors that contradict those set out in HMRC’s guidance.’ He said the tribunal had looked at all the characteristics of the entire vehicle as provided to the employee, not just at construction. ‘Employers should be mindful when relying on HMRC guidance in determining the taxable benefit arising on a company vehicle, as this may result in unexpected tax bills and possible penalties. The wider consequence of this case could be that double cab pick-ups are brought under review.’ Although the decision provided some useful principles, the picture remained unclear, and HMRC should offer new guidance as to what it deems to be a car and what is a van, Mr Farquhar added. ‘In the meantime, with HMRC guidance contradicting the tribunal findings, the retrospective collection of tax on these vehicles seems wholly unreasonable.’

Tax on cars, please refer to: https://comcar.co.uk/

Tax on Vans:
https://vantax.co.uk
https://www.gov.uk/expenses-and-benefits-company-vans/whats-exempt
https://www.gov.uk/expenses-and-benefits-company-vans/work-out-the-value

There is an income tax charge for an employee or a director who is provided by their employer or company with a company van that is made available for private use.

There is an additional tax charge where fuel is provided for private use. The employer providing the benefit additionally pays Class 1A NIC on the value of the benefit and has annual reporting obligations via form P11D or, alternatively, may payroll the benefit.

There is no tax charge for the employee or employer where private use is insignificant, or the van is only used privately for commuting to and from work. Where the employee makes a payment for private use, the charge is reduced according to the payment. From 2017/18 onwards, payments can be made up to 6 July after the end of the tax year, provided the benefit is not payrolled.

The tax charge is the employee’s rate of tax times the benefit.

Year 2018/19 Van benefit £3,350
For example:
For 2018/19, an employee who is paying tax at 20% will pay additional tax of £670 if they drive their employer’s van and are permitted to use the van privately. The tax charge will be an extra £126.60 if they are provided with fuel by their employer for private use. The employer will also pay Class 1A NICs of 13.8% on the benefit (£3,983 in total) = £549.65, but it will receive tax relief on that amount depending on the rate of tax it pays (as a company or business).

Van policy

An employer should set their van policy with respect to private use in writing, keep it updated, and give this to their van-driving staff or make it available where they may all read it. Ideally, staff should sign a statement to confirm that they accept and adhere to the policy. This provides useful evidence if any should be required at a PAYE visit and also makes the annual task of completing form P11D easier for the employer.

Zero emission vans

The 20% tapered rate van benefit charge for zero-emission vans will remain for 2016/17 and 2017/18. The van benefit charge exemption for zero-emission vans is to be phased out between April 2015 and April 2022.

What is a van? For benefit in kind purposes, a van is:

A vehicle of a construction primarily suited for the conveyance of goods or burden of any description (this does not include people).
With a design weight (the weight which the vehicle is designed or adapted not to exceed when in normal use and travelling on a road laden) not exceeding 3,500 kilograms.
A double cab pickup is classified as a car or a van following its VAT classification.
Work buses etc. are not vans because they are primarily suited to carry people.

VAT and Vans (and other commercial vehicles)

Input VAT may be reclaimed by a VAT-registered business on the purchase price of a van, and output VAT is correspondingly charged on the sale of a van. If a VAT-registered business disposes of a van, it must charge output VAT at the standard rate on the sale price; these are the normal place of supply rules. A VAT adjustment for the private use of fuel may be required in cases where there is substantial private motoring in a commercial vehicle; the VAT scale charge does not apply to commercial vehicles.

• Van benefit (£3,350 for 18/19) is chargeable if the van is available for an employee’s private use.
• A fuel benefit (£633 for 18/19) may also be chargeable if an employee has the benefit of private fuel paid for in respect of a company van.
• The charges do not apply to vans if a ‘restricted private use condition’ is met throughout the year.
• A reduced benefit charge may apply to vans that cannot emit CO2 when driven.

Restricted private use condition

A van benefit is not chargeable if a restricted private use condition is met throughout the tax year. The condition is met if:

the terms on which the van is made available to the employee prohibit its private use otherwise than for the purposes of ordinary commuting or travel between two places that is for practical purposes substantially ordinary commuting; and
neither the employee nor a member of their family or household makes private use of the van other than for those purposes; and
the van is available to the employee mainly for use for the purposes of the employee’s business travel.

The last point means that the van cannot be used for commuting purposes alone. The van must only be available to the employee for business travel and commuting and must not be used for private purposes except to an insignificant extent. The term insignificant is not specifically defined, so it takes the New Oxford English Dictionary meaning of ‘too small or unimportant to be worth consideration.’ HMRC’s guidance states that private use is considered insignificant in the following instances:

If it is insignificant in quantity in the tax year as a whole (that is, a few days at most).
If it is insignificant in quality (for example, a week’s exclusive private use is clearly not insignificant).
If it is intermittent and irregular (the weekly supermarket shop is not insignificant; an annual trip to the rubbish tip would be).
If it is very much the exception in terms of the pattern of use of that van by that employee (or their family or household) in that tax year.

If an employer does not report a company van benefit but cannot prove that the above requirements are met, HMRC will insist that the van is a chargeable benefit, and this can result in a significant tax bill and hefty penalties. HMRC can charge a £3,000 penalty for poor record keeping and a penalty of up to 100% of the tax due, as well as collecting the tax and national insurance due on the benefit on a grossed-up basis. Furthermore, HMRC can backdate tax, with interest, and penalties for up to six years. If HMRC cannot be convinced that the requirements are met, the amount at stake can quickly become detrimental to a business; therefore, it is vitally important that sufficient records are kept.

HMRC suggests that useful information/records for demonstrating that the necessary criteria have been met include the terms and conditions on which the van is made available to the employee and mileage records showing actual use. The terms and conditions should state that the van is to be used by the employee for business purposes only and should not be used for private purposes. Such terms and conditions could be included within the employee’s employment contract, a separate agreement could be signed, or they could even be included within a staff handbook, and employees sign to confirm they have read and understood this. Any of these would prove that there is no private use in theory.

In terms of proving no private use in practice, HMRC will insist that driving records will be required. This could be from a GPS logging system or manually entered mileage records. This is not necessary per the legislation, although the guidance detailed above would suggest it is. We have won many cases on behalf of clients who have not had van mileage records; however, it is always easier if these are available, and we would suggest detailing the dates, start and finish locations, mileage, and reasons for all trips as a minimum. Other procedures that can help to further evidence no significant private use would include the keys being kept at the business premises and access being restricted. If the van insurance documentation also states that only business use is insured, then HMRC will accept this as meaning no significant private use, and therefore no van benefit in kind charge.