An income tax charge will generally arise where an employee, or a family member, is able to use a work’s van for private use. This will nearly always include home-to-work travel.
Watch our video to learn more about tax on company pick ups.
From 6 April 2020, the flat-rate van benefit charge crept up once again and currently stands at £3,490.
If an employer also provides the employee with fuel for private use, then a tax charge on the provision of fuel will also arise based on an annual fixed rate. For 2020/21 the flat-rate van fuel benefit charge is £666.
The benefit charge applies regardless of the employee’s earnings rate but may be proportionately reduced if the van is only available for part of a tax year, and/or by any payments made by the employee for private use.
For 2020/21, a basic rate taxpayer will pay £698 for the use of a work’s van. This is 20% of £3,490, which equates to around £13.40 a week.
For a higher rate taxpayer, the cost will be £1,396.
If fuel is also provided for private use, for 2020/21, a basic rate taxpayer will pay additional tax of £133.20, and a higher rate taxpayer will pay £266.40.
HOW ABOUT PICK-UPS?
Given their versatility and ‘outdoorsy’ nature, double-cabbed pick-ups are increasingly becoming a popular choice for a family vehicle.
And the benefit in kind is far lower than it is on a car!
So, how does this work for the van benefit-in-kind tax charge?
To qualify as a van for tax purposes, a vehicle must be:
- a mechanically propelled road vehicle; and
- of a construction primarily suited for the conveyance of goods or burden of any description; and
- of a ‘design weight’ which does not exceed 3,500kg; but
- not a motorcycle as defined in the Road Traffic Act. Broadly, this means that it must have at least four wheels.
The design weight of a vehicle, also known as the ‘manufacturer’s plated weight’, is normally shown on a plate attached to the vehicle. What it means is the maximum weight which the vehicle is designed or adapted not to exceed when in normal use and travelling on the road laden.
Human beings are not ‘goods or burden of any description’ so vehicles designed to carry people (such as minibuses) will not be a van for these purposes.
When it comes to double cab pick-ups, former contention has arisen as to whether they should be treated as cars or vans. HMRC now interpret the legislation that defines cars and vans for tax purposes in line with the definitions used for VAT purposes.
This means that a double cab pick-up that has a payload of 1 tonne or more will be accepted as a van for benefits purposes. Payload means gross vehicle weight (or design weight) less unoccupied kerb weight. The 1 tonne rule only applies to double cab pick-ups, not to any other vehicle.
HOW DOES THIS COMPARE TO A CAR?
Company car benefit in kind tax is based on CO2 emissions and list price. Most pick-ups would be at the highest end of the CO2 emissions, which would lead to a benefit in kind at 37% of list price.
So, for example a £40,000 car would have a benefit in kind of £14,800.
If the business paid for fuel, there would be an additional benefit of £9,065 in the 2020/21 tax year.
The total tax payable by a basic rate taxpayer would, therefore, be £4,773. A higher rate taxpayer would pay £9,546.
This compares to only £831 or £1,662 for the same two taxpayers with a pick-up.
That’s a big saving!
WHAT ABOUT VAT?
As a general rule, you can’t claim VAT on the purchase of a company car.
However, you can claim VAT on a van. And a pick-up qualifies as a van!
On any van, prior to claiming VAT you should calculate the expected proportion of business use to personal use and only claim the percentage expected for business use.
So, overall there are big tax savings on pick-ups – if that’s the type of car you want.
I hope you found that useful. If you’d like to know any more, please get in touch with us.