Ray Chidell of Mazars Neville Russell provides AccountingWEB readers with the latest in his series of bulletins on employer-related tax issues. Ray is author of the P11D Handbook and offers employers a free, regular e-mailed tax advice bulletin, Employer Tax Update (ETU).
To get on the mailing list for his free bulletins, simply send an e-mail note of your name and company to ETU@mazars-nr.co.uk
Van or car?
The tax treatment of a van provided for the private use of a director or employee is considerably more favourable than that of a company car. This has led to serious consideration being given in some quarters to the use of a van in lieu of a car. Whilst it may not be a realistic consideration for the family driver, the range of vans available may mean that it is worth thinking about for the driver who is normally alone in the vehicle.
Advantages of driving a van
The tax advantages of driving a van rather than a car are now significant.
The maximum liability any individual will face for private use of a van is £200, being the benefit of £500 taxed at 40%. Where there is shared use of a van this figure is divided between the users accordingly. There is a further reduction for older vans. For an individual who makes only occasional private use of a van there is a chance to elect to be taxed on the value of only £5 per day of such use.
Where several vans are shared between several drivers, the legislation becomes complex but broadly the same principles continue to apply.
Significantly, there is no additional fuel charge for van drivers. Thus a driver can cover unlimited business mileage in an employer-provided van, with all costs covered by the employer, and still pay a minimal tax charge.
In addition, the employer will benefit where there is a reduced benefit in kind because of the consequent reduction in employer national insurance.
Definition of “van”
Given the tax advantages outlined above, the distinction between a van and a car can be critical. To qualify as a van, 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 (that is “the weight which a vehicle is designed or adapted not to exceed when in normal use and travelling on a road laden”) that does not exceed 3,500kg; and
- not a motorcycle as defined in section 185(1) of the Road Traffic Act 1988. Broadly, this means that it must have at least four wheels.
Human beings are not ‘goods or burden of any description’ so a vehicle designed to carry people (such as a minibus) will not be a van for these purposes.
The question often arises of whether “estate cars” can qualify as vans. The Revenue view (expressed in their Schedule E manual at paragraph SE23020) is that they can only do so if they “have been permanently and substantially modified to change their construction” with the result that condition (2) above is met.
The Revenue have also issued guidance with regard to four wheel drive “recreational vehicles” and luxury off road vehicles, as follows:
- “Luxury ‘off road’ vehicles and four wheel drive ‘recreational vehicles’ will usually count as cars. There are many different models of such vehicles produced by a number of manufacturers. Some, however, are produced as ‘commercial’ variants which may fall in one of the exceptions from the definition of ‘car’.”
Instructions to local tax offices are that they should make a report to the specialist division of the Revenue before accepting that any ‘outwardly conventional car’ can be treated as outside the definition of ‘car’ for tax purposes.
In the end, each case must be considered on its merits. However, an individual who drives a £20,000 vehicle, covering low levels of business mileage but with high private mileage, with all fuel paid for by the employer, could find his annual tax bill reduced by thousands of pounds if successful in arguing that the vehicle is a van rather than a car.
Finally, it should be borne in mind that if the vehicle falls outside the definition of both “van” and “car” then other tax consequences may ensue.
See Ray’s previous bulletins on payments in lieu of notice, employee clothing, employee contributions to company cars, tax-free benefits, FPCS, employment status, P11Ds, PAYE Settlement Agreements, Class 1A National Insurance, Company car issues, and loans to employees.
