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Our employee's guide to company van tax provides employees with easy to read, easy to use information to help you make the right decisions in the area of company vans and van fuel allowance.
Information is provided as a guide only. Select Car Leasing cannot be held responsible for any personal or business decisions made as a result of information provided in the guides.
As with all aspects of taxation, it is the responsibility of individuals and businesses to understand the rules and regulations and act accordingly. As personal and business circumstances can vary, it is also advised that you take professional accounting advice before making a final decision.
We explain what a company van actually is, what the tax implications are, the rules of use, employee's responsibilities, plus we provide a summary of the benefits, drawbacks and key points for consideration.
Looking for information and guidance on the employer perspective? Read our employer guide to company vans, company van tax, mileage/fuel allowance.
‘Company van tax’ is one form of BIK or ‘benefit in kind’ tax. It is a tax payable by employees who receive personal benefits or perks on top of their salary. If you’re being offered a company van (whether it be owned or leased) by the business you work for and the van will be used to any degree for your own private/ personal use, then as an employee, you’ll have to pay company van tax (BIK) on it.
Usually, company vans are given to employees for combined business and private use, however on occasion they are given for business-use only. The tax implications for employees who have been provided with a company van differ considerably, depending on what type of journeys the vehicle is used for.
Although a somewhat difficult test to pass, if your employer can demonstrate the vehicle is ‘not available for personal use’, there will be no BIK (company van tax) payable by you the employee. The ‘pass or fail’ test the HMRC applies, is whether the vehicle is ‘available for private usage’. In addition, the vehicle must also be insured for business-only usage.
These rules also apply to vehicles that are pool vans (i.e. where more than one employee is using the vehicle). Again however, such strict business-only of vehicles is unusual.
If, on the other hand you use the company van for a mix of business and private use, then the HMRC views this as a bonus of your employment and you must pay BIK on it. The amount payable by you, the employee, is usually deducted from your monthly salary/wages.
The BIK amount payable by an employee for a company van with mixed business-private use is determined by both the current flat-rate van benefit charge set by the Government as well as by your personal tax bracket.
The flat-rate van benefit charge for the tax year 2020/2021 is set at £3,430 and, unlike for cars (where the tax is based on a scale of CO2 emissions and the list price of the car) is a fixed rate.
The employee BIK rate payable can be calculated by simply multiplying the flat rate for vans by your personal tax bracket (e.g. 20%, 40%), to give the amount that will be deducted from your salary or wages each month, e.g.:
The flat-rate BIK payable is even lower if the van happens to be an electric one, where the rate is set at just £2,058 for the tax year 2020/21.
Again (as with the previous calculation), the employee/Director simply multiplies this rate by their personal rate of income tax to find the amount of BIK payable for that year.
There are circumstances however where employees may be exempt from having to pay employee-payable BIK on their company van, and these are as follows:
There are also a number of circumstances where employees may be able to reduce the amount of BIK payable on their company van:
NB: To be classified as a pool van, the HMRC states that the vehicle must:
If you're thinking about leasing a van or pickup, we have a collection of informative guides on all aspects of vans and commercial vehicles to make the process as simple as possible.
Our employers’ guide to company van tax (or ‘van benefit charge’ to use the correct term), explains everything you need to know, including tax by van body type, how usage affects van tax, how the tax is calculated and ways you can potentially reduce your company van tax bill.
If you're considering a new van, then your finance options will depend on whether you want to use the van for mixed personal-business purposes or for personal use only.
Regardless of the shape or size of your business, Business Van Leasing offers a myriad of benefits, making it a really smart choice. To find out more about the tax and accounting benefits of business van leasing, along with the staff-related benefits and broader business-related benefits, read on.
