To make things more complicated (not a phrase completely alien to tax issues!) the taxman treats company vans differently from company cars. The HMRC defines a van as a vehicle which is built primarily to carry goods or other loads, with a design weight (the weight it is able to carry) of up to 3,500 kilograms. On 6 April 2005, the HMRC lessened the tax burden on a significant number of employees with company vans. Tax contributions are only required if employees use their vans for private journeys rather than work-related trips. Therefore, journeys made to and from work and tasks such as making deliveries or visiting customers are exempt from tax. Employees who use their vans for activities not related to work will be charged tax. However, the HMRC states that if this private travel is ‘insignificant’, they will not be required to pay anything. What is classed as insignificant private use? According to the HMRC, private use is insignificant if it’s ‘very much the exception to the normal use, is intermittent and irregular and last only for short periods of time on odd occasions during the year.’ To help clear up the ambiguity of this statement, the government body cites the following examples of what constitutes insignificant private use:
- If an employee takes an old mattress or other rubbish to the tip once or twice a year.
- If he or she makes a slight detour to drop a child off at school or go to the newsagents on the way to work.
- A dental visit on the way home.
The following examples are deemed to not fall into this category and are worthy of taxation:
- Regular use of the van to do supermarket shopping.
- Taking the van away for a week’s holiday.
- Use of the van for social activities outside work.
What will be charged? If staff are eligible for tax through the private use of their vans, the following amounts will be required: 2006/07 £500 reduced to £350 if the van is over four years old. 2007/08 £3000 with tax on an extra £500 if they have free or subsidised fuel for private use. You will have to pay Class 1A National Insurance on these amounts. Employee contributions If your staff contribute towards the running costs of the van, this will be taken into consideration when the HMRC works out your tax burden. If their contributions are equal or exceed the charge, the tax requirement will be reduced to nil. Otherwise, the charge will be reduced by the amount contributed.
It’s important that you keep sufficient records to illustrate the capacity in which staff use their vans. You may want to stipulate how and when vans can be used in employment contracts, or ask employees to sign a statement on company policy and the penalties if these are contravened.