Income tax and company vans for years up to and including 2004/05
Contents
Employees
- What is a company van?
- What is a van's 'design weight'?
- What if my van weighs more than 3,500 kilograms?
- What is business use?
- What is private use?
- Do I have to pay tax on a company van?
- How much is the charge?
- Do I pay tax of £500 or £350 on my van?
- What happens if I cannot use my company van for part of the tax year?
- What happens if I have to pay for private travel in my van?
- What happens if I receive free fuel for private travel?
- What happens if, at any time, I have more than one company van that I alone can use for private travel?
- Do I pay tax on a company van provided to my spouse for private travel?
- Shared vans: What if I share the private use of a company van with other employees
- What happens if I have a shared van and the calculation gives me a charge of more than £500?
- What happens if I share a van for only part of the tax year?
- What happens if I have the use of a shared van for part of the year and sole use of a van for the other part of the year and the total charge comes to more than £500?
- I only use a shared van for private travel a few days in the tax year. Can I reduce the charge?
- How will I know if the alternative charge is to my advantage?
- What happens if I have to collect colleagues on my way to work in a company van?
- How is the tax on my company van collected?
Employers
- What records do I have to keep?
- What information do I have to provide to the Inland Revenue?
- What NICs do I have to pay?
- What happens if I provide free fuel or reimburse the cost of fuel to employees?
- How are Class 1A NICs reported and paid?
- Other information on van benefit
A guide to the tax and National Insurance contributions (NICs) treatment of company vans for employees and employers. It contains material formerly published in leaflet form (though the examples have been updated). There is a link to other information on van benefits, including those after 2004/05, at the end.
Employees
If your employer provides you with a company van that you can use for private travel, it is a 'benefit in kind' and you may have to pay tax on it. You will not have to pay NICs on this benefit.
What is a company van?
This is a vehicle provided by an employer
- built primarily to carry goods or other loads
- with a 'design weight' of up to 3,500 kilograms.
It does not include vehicles such as cars, estates or minibuses, built primarily to carry people. Nor does it include heavier vans or lorries weighing more than 3,500 kilograms.
What is a van's 'design weight'?
It is the maximum weight a loaded vehicle is designed (or adapted) to carry, when in normal use and travelling on the road. Also known as the 'manufacturer's plated weight', it is usually shown on a plate attached to the van.
What if my van weighs more than 3,500 kilograms?
You will not pay tax on any private use, unless you use the vehicle wholly or mainly for private travel. If you do, the tax charge will be based on the running costs of the vehicle and its market value when it was first made available to you. You will not have to pay NICs on this. [DN: part of original text]
What is business use?
Business travel includes two types of journey
- those you have to make in the course of doing your job
- those you make to or from a place you have to attend in order to do your job, as long as the journeys are not ordinary commuting or private travel.
What is private use?
Private use is when you use the van for anything other than business travel.
Ordinary commuting is travel between your home, or any other place you attend for personal reasons, and your usual workplace. An ordinary commuting journey counts as private use even if you are obliged to take the van home because
- you are 'on call'
- it ensures the van's security or that of its contents, or
- your employer has no facilities for keeping the van on his or her premises.
Ask your Tax Office for advice if you need to know about the rules and your employer is not able to help you.
Do I have to pay tax on a company van?
You have to pay tax on any benefit in kind you receive, including any private use of a company van, if you are an employee earning £8,500 or more a year, or are a director.
Your earnings for this test include
- your wages or salary
- payments for business expenses, and
- the value of benefits, such as the company van.
The term employee is used to cover both directors and employees from this point.
How much is the charge?
The benefit of private use of a company van is taxed by way of a standard charge. The standard charge is
- £500, if the van is less than four years old at the end of the tax year, or
- £350, if the van is four or more years old at the end of the tax year. (A tax year begins on 6 April and ends on 5 April in the following year.)
The age of the van is taken from the date it was first registered. So, a van that is first registered on 5 April 2001 will qualify for a reduction in 2004-05.
Do I pay tax of £500 or £350 on my van?
No. The standard charge is the amount you pay tax on. If, for example, you pay tax at the basic rate of 22% in 2004-05, the tax charge is £110 (£500 x 22%) for a newer van or £77 (£350 x 22%) for an older van.
What happens if I cannot use my company van for part of the tax year?
If the van is first provided part way through the tax year, or stops being provided before the end of the tax year, the standard charge is reduced proportionately to take account of periods when the van is unavailable to you, or is a shared van.
A van is treated as unavailable to you at any time before the day it is first made available or at any time after the last day on which it was available. A van is also treated as unavailable to you for any continuous period of 30 days or more when it is not available at all, for example, if it is off the road for repairs.
Example
Van A, registered in 2000, is available for your sole private use from 6 April 2004 to 5 July 2004.
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What happens if I have to pay for private travel in my van?
The standard charge is reduced pound for pound by the amount of any contribution you have to make to your employer.
What happens if I receive free fuel for private travel?
The standard charge for tax remains the same, as it includes the benefit of any free fuel provided by your employer for the private use of a van. But, you may have to pay NICs if your employer pays for or reimburses you for your private fuel.
You may also have to pay tax and NICs if your employer pays a business mileage rate that is more than the cost of the business travel you undertake in the van.
What happens if, at any time, I have more than one company van that I alone can use for private travel?
If you have more than one company van at the same time, which you alone can use for private travel, you pay tax on a standard charge for each van. For example, if you have two vans throughout the tax year, which you can use privately, you pay tax on two standard charges.
Do I pay tax on a company van provided to my spouse for private travel?
Yes. If you earn £8,500 or more a year or you are a director, and a company van is provided to any member of your family or household for their private use, you pay tax on a standard charge.
Shared vans: What if I share the private use of a company van with other employees?
There are special rules for shared vans. A van is shared if it can be used for private travel
- by more than one employee at the same time, or
- by different employees at different times in the tax year.
To work out the charge for each employee, your employer should add up the total standard charges for the shared vans at the end of each tax year. The total charge is then divided equally between all of you that used the vans for private travel in the year.
Example
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What happens if I have a shared van and the calculation gives me a charge of more than £500?
This can happen if there are more shared vans than there are employees. If the calculation gives a figure of more than £500 for your share, the charge is limited to £500.
What happens if I share a van for only part of the tax year?
The standard charge is reduced for
- periods when the van is provided part way through the tax year or stops being provided before the end of the tax year
- periods of 30 or more consecutive days when the van cannot be used
- periods of 30 or more consecutive days when the van can be used for private travel, but by only one employee.
Example
Van E is two years old at 5 April 2005. From 6 April 2004 to 5 June 2004
it is only available to William.
From 6 June 2004 William shares it with Gary. On 24 March 2005 Gary leaves
and William regains
exclusive use.
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The standard charge relating to period of shared use for the rest of the
year,
6 June 2004 to 23 March 2005, is £400 (that is, £500 less £100).
As William and Gary shared the use of van E from 6 June 2004 to 24 March
2005
(292 days), the standard charge is divided equally between them, that is,
£400
shared between two = £200 each.
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William pays tax on the sum of £300 and Gary on £200.
What happens if I have the use of a shared van for part of the year and sole use of a van for the other part of the year and the total charge comes to more than £500?
The charge is again limited to £500.
I only use a shared van for private travel a few days in the tax year. Can I reduce the charge?
Yes. You can choose to pay tax on a charge of £5 for each day you travel
privately in a shared van. If, for example, you used a shared van for private
travel on 20 days in the tax year, you would pay tax on £100.
If you choose this alternative charge you will need to tell us, at the end
of the tax year, the number of days you used a shared van for private travel.
You should keep a record of each day you travel privately in a shared van,
as we may ask to see your records.
How will I know if the alternative charge is to my advantage?
You should ask your employer at the end of the tax year what figure has been calculated for your share of the vans. If, from your records, the alternative charge of £5 a day gives a lower figure, you may ask to be taxed on the lower charge.
What happens if I have to collect colleagues on my way to work in a company van?
The standard charge will apply if you use a company van to and from home even if you have to collect other employees. The van is classed as a shared van and the standard charge will be divided between you and the colleagues you collect.
How is the tax on my company van collected?
The tax will normally be collected through your Pay As You Earn (PAYE) code.
Under PAYE, tax is deducted from your income by using codes and tax tables which are designed, as far as possible, to ensure that the correct amount of tax is deducted during the tax year without the need for an assessment at the end of the year.
The PAYE code is made up of personal allowances and other reliefs due, less any amounts to cover taxable income, such as a company van and other benefits in kind, to which PAYE cannot be applied.
Your employer will normally provide information about your benefits in kind, including company vans, to us so that your PAYE code can be worked out. But, you must still include details of those benefits on your tax return if you are asked to complete one.
Employers
As an employer, there are three things you must do
- keep records
- report any taxable benefits, and
- pay any NICs that are due.
What records do I have to keep?
You need to keep enough records to enable you to correctly calculate the amount of the van charge and NICs payments.
There is a working sheet on calculating van benefits included with the P11D series of forms. The working sheet P11D WS3 'Vans available for private use' provides a useful reminder of the type of information employers will need.
What information do I have to provide to the Inland Revenue?
You will need to tell us the amount of van benefit for all directors and those employees earning £8,500 a year or more, who have had private use of a van. You must report this on form P11D.
You can use the working sheet P11D WS3, described above, to help you work out the figures you need to include on form P11D (see our leaflet 'Expenses payments and benefits in kind' for more information).
What NICs do I have to pay?
If you provide company vans to directors and employees earning £8,500 or more, you may have to pay Class 1A NICs. Only employers pay Class 1A NICs.
Normally, a Class 1A NICs liability will arise where the benefit of a van is chargeable to income tax on the director or employee and the employment for which the van is available is employed earner’s employment under Social Security law.
The amount of Class 1A NICs you pay is calculated using the same scale charges that are used for working out how much tax your employee will pay. The rules for calculating Class 1A NICs on shared vans and on vans which are unavailable during the tax year are exactly the same as the rules for calculating the charge for tax purposes.
What happens if I provide free fuel or reimburse the cost of fuel to employees?
If you provide free private fuel for use in a company van, for example, from your own fuel pump, you will not have to pay any additional Class 1A NICs. But, you may have to pay Class 1 NICs if
- you pay for, or reimburse your employees, the cost of private fuel, or
- you reimburse your employees more than the cost of fuel purchased for business travel.
See our Employer’s further guide to PAYE and NICs for more information.
How are Class 1A NICs reported and paid?
A new system of reporting and paying Class 1A NICs was introduced from 6 April 2000. Full details of the new reporting and paying arrangements and more detailed information on how to work out Class1A NICs on other benefits you provide to your employees are included in booklet Class 1A National Insurance contributions on Benefits in Kind.
Other information on van benefit
Additional information can be found at www.inlandrevenue.gov.uk/vans, including
a fact sheet for employees.
