Van Tax Explained

If you are one of the many thousands of UK motorists who benefit from driving a company car, or if you own a business, being tax savvy when choosing your vehicle could save you a considerable amount of money courtesy of Her Majesty's Government. This is because certain vehicles are not classed as cars at all, but as light commercial vehicles, and driving one could save you quite literally thousands and thousands of pounds in tax every single year!

Thanks to their combination of reliability, drivability, impressive styling and hard work/hard play ethic, vehicles like the Nissan NV200 and Ford Transit, for example, have developed a firm following in the UK. Yet despite their exceptional good looks these vehicles, even with accessories fitted, means that for BIK tax and VAT purposes every single model is classed as a light commercial vehicle (LCV).

Commercial Vehicle Tax Facts for Employees

All featured vans are classed as light commercial vehicles (LCV's), and all LCV's enjoy a standard Benefit in Kind liability irrespective of their purchase price or how many accessories you fit. This means that if you are a tax payer in the 40% tax bracket, driving a Mercedes Sprinter or Peugeot Bipper for example, you could save in the region of £4,000 every year on Benefit in Kind tax payments compared with a similarly priced passenger car. How would you like to have an additional £300 or more in your pocket every single month!

  • If you enjoy unrestricted private use of a van, in the tax year from April 2008 your BIK liability is £3,000 x your marginal tax rate, ie, a 20% tax payer will pay £600 per year whilst a 40% tax payer will pay £1,200 per year.
  • If your employer provides your fuel for private use an additional BIK liability of £500 applies, which means the tax payable for a 20% tax payer is £100 per year and £200 per year for a 40% tax payer.
  • Employees who use a commercial vehicle which is only available for business purposes, and remember this includes travel from their home to their normal place of work, have no BIK tax liability whatsoever.

Commercial Vehicle Tax Facts for Employers

All featured vans, even if you fit accessories are classed as light commercial vehicles (LCV's).

  • If you provide your employees with an LCV instead of a passenger car, it is just like giving them a substantial instant pay rise, as driving a van could save them many thousands of pounds every year in BIK tax payments: for details of some comparisons see the table below.
  • As with BIK, Class 1A National Insurance Contributions are considerably reduced on a Light Commercial Vehicle compared with a passenger car. If your employee enjoys unrestricted private use of any van, in the tax year from April 2008 Class 1A NIC is £384 (£3,000 x 12.8%) whereas Class 1A NIC on a Jeep Cherokee would be £1,078 (£8,426 x 12.8%).
  • Light Commercial Vehicle's qualify for a VAT reclaim subject, obviously dependent on the business being VAT registered, the vehicle being used for business purposes and it being purchased outright or on a finance purchase plan. The percentage of VAT reclaimable is dependent upon the extent to which the vehicle is to be used for business purposes,
  • ie, if the vehicle is used 50% for business purposes and 50% for private purposes then only 50% of the VAT can be recovered. The same ruling applies to fuel purchases.
  • The VAT on an Light Commercial Vehicle hire purchase plan rental (contract hire or leasing) is also fully reclaimable, subject to the points made above.
  • Car tax (Vehicle Excise Duty) on all vans is at a standard rate of £200 per annum, irrespective of their CO2 emissions.

NB As tax liability can vary according to circumstances we would always suggest that you check with your accountant or tax advisor to see what allowances you are eligible to take advantage of.

This table compares the tax payable on a Mitsubishi L200 Animal Double Cab and equivalent vehicles with a similar retail price. Despite its sophisticated 4-wheel drive system, its upgraded engine and top-of-the-range specifications, such as leather seats and satellite navigation - all if which make it a highly desirable vehicle, this pickup truck shows a BIK and fuel benefit tax saving of up to £4,336!

Type Mitsubishi L200 Animal D/C Ford Mondeo 2.0 TDCi Ghia Estate Manual Nissan X-Trail 2.0 dCi Sport Jeep Cherokee 2.8 CRD Limited
OTR price (inc. VAT) £23,573.85 £21,874.36 £22,859 £24,077
Vehicle BIK liability £3,000 £4,812 £6,857 £8,426
Fuel benefit in kind † (inc. private use) £500 £3,718* £5,070* £5,915*
Emissions LCV 156g/km 198g/km 222g/km
Tax liability as a percentage n/a 22% 30% 35%
20% tax band
Vehicle tax @ 20% £600 £962 £1,371 £1,685
Fuel benefit tax @ 20% £100 £744 £1,014 £1,183
Total tax payable for 20% tax payer £700 £1,706 £2,385 £2,868
40% tax band
Vehicle tax @ 40% £1,200 £1,925 £2,743 £3,370
Fuel benefit tax @ 40% £200 £1,487 £2,028 £2,366
Total tax payable for 40% tax payer £1,400 £3,412 £4,771 £5,736

* Business mileage may be reclaimable at up to HMRC approved rates.

† Based on 22% charge for Ford (19% plus 3% diesel surcharge), 30% charge for the Nissan (27% plus 3% diesel surcharge) and 35% charge for Jeep on £16,900 fuel BIK based figure. Fixed figures to increase by RPI each year.

Disclaimer

Any tax allowances detailed are subject to timing differences and the status of your business. As a result, you should check with your Accountant or Tax Adviser that you are eligible to take advantage of these allowances. Personal use of these vehicles may give rise to a tax assessment and we recommend you discuss this with your Accountant or Tax Adviser. Details were correct at time of publication. Tax information is provided as a guide only. Tax liability can vary according to circumstances. Please contact your local Inland Revenue office for further information.

You can contact The Inland Revenue Contact Centre on 0845 300 3939 or visit their web site at www.inlandrevenue.gov.uk.

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