Vans - beware the tax changes after 6th April 2007
January 2007
For the current tax year van drivers will suffer no tax charge for the use of a company van as long as private mileage is restricted to:
- Home to work journeys, and
- Incidental private use. (The occasional trip to take household rubbish to the local dump is permissible but using a van to do the weekly shopping would not.)
These restrictions on private use, home to work and incidental use only, need to be clearly stated in the employee's contract of employment.
Van drivers who do use their vehicles for private use will suffer a benefit charge. For 2006-07 the scale charge is £500 if the van is under four years old, and £350 if the van is more than four years old. At basic rate this will add between £77 and £110 to the driver's annual tax bill.
As you will be aware from the 6 April 2007 things are going to change!
To put the changes into context we should first revisit the definition of a van. For tax purposes a vehicle is considered a van if it can carry payloads up of one tonne or more. Significantly this includes double cab pick-ups. Consequently double cab pick-ups have provided car users (who are happy to drive a "luxury" crew cab pick-up with a low tax benefit charge) as a way of avoiding the potentially much higher benefit charge for the use of a car with a similar specification (excluding the notional open-air boot!). This has reduced the potentially high benefit in kind charge (for the use of a car) to just £500 per annum (for the use of a well fitted double cab pick-up.)
The changes about to be introduced from 6 April this year counter this strategy.
The new rules from 6 April 2007
- As long as there is no private use of the vehicle, other than incidental use (ordinary commuting is allowed), there will continue to be no benefit in kind charge.
- If there is considered to be any private use beyond incidental use, the annual benefit in kind charge will be increased to £3000.
- Additionally if employers provide private petrol there will be an extra £500 fuel benefit charge.
For a standard rate taxpayer this could add up to £700 to a driver's annual tax bill - if the new van scale does apply employers will also have to pay more Class 1A National Insurance.
If you have not yet devised a proper policy for the use of company vans, to minimise the tax impact under the new rules, this would be a good time to start. Certainly it is imperative that any restrictions on private use are clearly set out and included in employees' contracts of employment. If you would like our assistance in formulating and implementing an effective policy, please call.
