The first line of defence for companies wishing to avoid BIK taxation for van drivers as well as employers Class 1A NICs is a clear policy on prohibition of private use, says Rupert Russell, publisher of www.comcar.co.uk, a specialist company car tax website.
What is a company van?
HM Revenue and Customs (HMRC) defines this as a vehicle provided by an employer, built primarily to carry goods or other loads and with a 'design weight' of up to 3,500 kilograms. Dual purpose vehicles (those with a second row of seats) need to be able to carry a one tonne payload to fall within van tax rules.
Vans, also called Light Commercial Vehicles (LCVs), have sold well in recent years to keep up with deliveries for online stores. Sales of double-cab pickups have also shot up because they have the seating capacity of a car, but are taxed as a van.
Current position regarding income tax
The taxable benefit for private use of a company van is currently £500 per annum, reducing to £350 if the van is four years old or more at the end of the tax year. There is no fuel scale charge. This means that fuel can be supplied for company vans and used privately without any income tax liability arising on the driver.
These two factors mean that a company van driver pays very little tax if their employer allows the van and fuel to be used for private mileage.
Since 6 April 2005, a nil charge will apply to employees who have to take their van home and are not allowed other private use. It will not be sufficient for a driver to deny other private use as the employer must be able to provide evidence that they have forbidden such use.
Drivers who use the van for private journeys other than home to work will continue to be taxed as above.
HMRC is happy that few van drivers fall within the tax regime since this saves a lot of paperwork for little tax.
However, this attitude won’t extend to local tax inspectors keen to score points on visit, so it is vital that employers can show that the rules are not abused in cases where drivers are not taxed.
Future changes
From 6 April 2007 the scale charge for unrestricted use of a van will jump to £3,000 and if free fuel is provided for private use an additional Benefit In Kind (BIK) charge of £500 will apply. These will be taxed on the driver at their top rate of tax. Such charges will not apply to self-employed van drivers.
It is also likely that tax inspectors will look much harder at cases where it is claimed that a double cab pickup is only used for work and travel to work. Far more tax will be at stake, and the sight of just one helpfully sign written van at the seaside at the weekend could expose a whole van fleet to investigation and assessment.
Defence against the van tax
The first line of defence for companies wishing to avoid BIK taxation for van drivers as well as employers Class 1A NICs is a clear policy on prohibition of private use (other than driving to or from work if applicable). If there is any suspicion that this policy is not being enforced, an employer will also need to be able to show detailed mileage records, perhaps linked to job records or other evidence that the driver was working. Most employers will have these disciplines in place anyway for reasons of cost control and health and safety.
