Driving a company van rather than a car can save you and your business tax and NI. In fact, there’s no tax charge at all if you stick to HMRC’s conditions; what are they?

Van tax rates

Unlike company car drivers, employees and directors using company vans for private journeys are taxed on a fixed amount rather than a variable one based on emissions. The flat rate taxable amount for 2020/21 is £3,490 and where the employer also meets the cost of fuel for private journeys, the fuel benefit is £666.

How much tax and NI?

A higher rate taxpayer provided with a van and fuel for private journeys for the whole of 2020/21 would pay tax of £1,662 ((£3,490 + £666) x 40%). The employer would pay Class 1A NI of £574 ((£3,490 + £666) x 13.8%). However, unlike company cars, vans can be used for some private journeys without any tax or Class 1A NI liability at all.

Tip. Where the “restricted private use” condition is met, no tax charge arises for use of the van or the provision of fuel by the employer.

What is “restricted private use”?

The restricted private use condition is that the employer only permits an employee to drive the company van for business purposes. However, unlike the position for company cars and mileage allowances paid for journeys in an employee’s own car, ordinary commuting (travel between home and a normal place of work) counts as a business journey for the purpose of the van benefit.

Tip. Whether or not the restricted private use condition is met, the private use of a van doesn’t trigger a tax charge where the private mileage is “insignificant”.

What counts as insignificant?

The legislation doesn’t give any hints as to how much “insignificant” is, but HMRC’s view is that private use is:

  • not for more than a few days at most over the whole tax year
  • not for a number of consecutive days – two or three would be OK, but probably not more
  • is intermittent and irregular
  • the exception in terms of the pattern of use.

HMRC also gives examples of the type of use that it considers insignificant and that which it doesn’t.

Creating the right conditions

In practice how a van is actually used is difficult for HMRC to check with any accuracy. Nevertheless, you should take a reasonable approach and stick as closely as possible to HMRC’s guidelines.

Tip. If you want to make use of the restricted private use exemption (so that the van can be used by one or more employees for ordinary commuting without there being a taxable benefit in kind), you should, in your role as the employer, express clearly in a written policy that the van isn’t to be used for private journeys except where they are insignificant.

This article has been reproduced by kind permission of Indicator – FL Memo Ltd. For details of their tax-saving products please visit www.indicator-flm.co.uk or call 01233 653500.