How can I get the most tax efficient company cars or vans?
“How can I get the most tax efficient company cars or vans?” is a question we are asked a lot.
Company cars have become increasingly expensive from a tax and NI point of view, especially if private fuel is provided.
Not only do the percentages used to calculate the taxable benefit tend to shift upwards each year, but the loophole of using salary sacrifice to reduce the in-pocket cost to the employee was shut down in 2017.
Salary sacrifice arrangements for cars that were in place at 6 April 2017 will remain effective until they are renewed or revised in any way.
So is there an alternative to getting tax-efficient company cars or vans?
A van with private use is taxed according to a, usually more favourable, fixed amount: £3,350 for the van and £633 for fuel in 2018/19.
To illustrate the potential savings, consider a diesel car with CO2 emissions of 146g/km with a list price of £35,000 and some private fuel provision. The taxable benefit in kind will be £10,850 for the car plus £7,254. Provision of a van at the fixed rates above would save a higher rate employee £5,648 in 2018/19, as well as saving the employer £1,949 in Class 1A NI.
A “van” for the purposes of the benefits code is not restricted to transit-type vehicles, many pick up trucks also qualify. The treatment is not defined clearly in statute so
you have to look at case law to determine it.
In general, a vehicle will be considered a van if its construction makes it primarily suited to transporting goods rather than passengers. A further rule (applicable to VAT) applying specifically to double-cab pick up vehicles has also been generally accepted by HMRC. Such a vehicle will be a van for tax purposes if it has an unladen weight of at least one metric tonne.
In particular, care must be taken with vehicles that are clearly constructed for use as a commercial van, but are subject to modifications which change their suitability.
A company van will not trigger a benefit in kind if the provision meets the “restricted private use” condition. This means that the employee can only drive the van on business purposes, but crucially ordinary commuting between the home and workplace also counts a business travel.
This is far better than the position for a car, where commuting would cause any claim that the car is only used for business travel to fail. In order for this condition to be met, any significant private use must be prohibited.
Need further advice? Get in touch and we’d be happy to help.