Employer-provided vans

Schedule 14 of the Finance Bill 2004 sets out the rules that will apply to the taxation of employer-provided vans from the 2005/06 tax year onwards. In addition to limiting the tax charge to vans where private use exceeds simple commuting, the new rules simplify the tax calculation where a van has shared private use. Please note that these provisions are subject to change during the Bill's passage through Parliament.

1. The provisions of Chapter 6 of the Benefits Code, as they relate to the taxation of cars, vans and related benefits, do not apply to a van if the private use of the van during the tax year by the employee, or member of the employee's family or household, is insignificant.
   
   
2. Where an employee is offered a cash alternative to a van and takes up the offer, the cash payments are taxed under PAYE, as in the case of a cash alternative to a car. Where the employee declines the cash alternative, the cash equivalent of the van is as set out in the Benefits Code, not the amount of the cash alternative.
   
   
3. Where the "restricted private use condition" is not met, the cash equivalent of a van is
   
   
   • for tax years 2005/06 and 2006/07, £;500 if it is less than 4 years old at the end of the tax year, or otherwise £;350, and
   • for subsequent tax years, £;3000.
     
     

4. The "restricted private use condition" is met if
   
   
   • the "commuter use requirement" is satisfied throughout the period during which the van is available to the employee, or the extent to which it is not satisfied is insignificant, and
     
     
   • the "business travel requirement" is satisfied throughout the period during which the van is available to the employee.
     
     

5. The "commuter use requirement" is satisfied if
   
   
   • the terms on which the van is available to the employee prohibit its private use other than for the purposes of what is, or is substantially, ordinary commuting, and
     
     
   • neither the employee nor a member of the employee's family or household makes private use other than for those purposes.
     
     

6. The "business travel requirement" is satisfied if the van is available to the employee mainly for use for the purposes of the employee's business travel.
   
   
7. The cash equivalent of a van may be reduced proportionately where (1) it is unavailable, (2) it is shared, or (3) the employee makes payments in respect of its private use.
   
   
   • The unavailability rules match those for company cars, including the 30-day requirement (but see below).
     
     
   • A van is shared if it is made available concurrently for the private use of more than one employee or member of an employee's family or household. The cash equivalent is first calculated for each employee separately, then reduced 'on a just and reasonable basis'.
     
     
   • If an employee is required to make, and actually does make, a payment as a condition of the van being made available for private use, the cash equivalent is reduced by the amount paid.
     
     

8. If a van is unavailable for less than 30 days and the employee is provided with a temporary replacement van for all or part of that period, no additional charge arises for the replacement van.
   
   
9. If an employee is liable to pay tax on the provision of a van and the employer also provides fuel for the van, there is an additional fuel benefit charge unless
   
   
   • the employee is required to make good, and actually does make good, the cost of fuel provided for private use, or
     
     
   • the fuel is only made available for the business use of the van.
     
     

10. The cash equivalent of the fuel benefit is
    
    
    • for tax years 2005/06 and 2006/07, nil, and
      
      
    • for subsequent tax years, £;500.
      
      

11. The cash equivalent of the fuel benefit is reduced proportionately where the van is unavailable for 30 days or more.
    
    
12. The cash equivalent of the fuel benefit is also reduced proportionately where, for any part of the tax year
    
    
    • there is no provision of fuel, or
      
      
    • fuel for private use is not available, or fuel is made available only for business use, or
      
      
    • the employee is required to make good, and actually does make good, the cost of fuel provided for private use.
      However, if, later in the tax year, there is a time when none of these three conditions are met, the fuel benefit charge applies in full for the year.
      
      

13. If the van charge is reduced because it is shared, a corresponding reduction is made to any fuel benefit charge.
    
    In two separate documents, the Inland Revenue has published
    
    
    • an analysis of the feedback on the consultation document on company vans, and
      
      
    • a regulatory impact assessment of the changes on employers of different sizes.

There are currently about 40,000 employers who provide some 220,000 van for employees. The changes are expected to remove the need for 85% of these vans to be reported, from April 2005. The reduction in income for the Exchequer is estimated at £;30 million. The increase in the van charge and the introduction of the fuel charge from April 2007 is expected to yield around £;30 million, making the changes revenue neutral.

Source: www.inlandrevenue.gov.uk/finance_bill2004/index.htm
www.inlandrevenue.gov.uk/consult_new/consult-report-vans.pdf
www.inlandrevenue.gov.uk/ria/vans.pdf
...back to 9 April 2004

Consultation on employer-provided vans

As promised in both the 2002 and 2003 Budgets, the Inland Revenue has published a consultation document setting out proposals to reform the way in which company vans are taxed.

The current scale charge for a van that is made available for an employee's private use is £;500, or £;350 for a van that is four or more years old at the end of a tax year. The current method of taxing company vans has been in place since 1993 and the values have not increased in that period.

The Government's view is that the present system of taxing company vans is too complicated, does not provide any incentives for cleaner vans, does not reflect modern working practices, and the flat rate charge does not properly represent the economic benefit of a van provided for private use. Therefore, the objectives of the reforms are

• to reduce the regulatory burden on employers by simplifying the calculation of the charge for shared vans
• to take into account the environmental impact of vans
• to ensure a fair charge for the benefit gained by an employee from the private use of a company van, taking account of the new regime for the taxation of company cars.

The four key proposals are as follows:

1. Private use of a van

It is not possible to introduce a charge based on CO2 emission levels as there are no published figures for vans. The proposal, therefore, is to retain a scale charge but to set it at different levels to reflect the amount of private benefit to individuals. A lower charge might apply where home to work travel is incidental to the business use of the van, for example, where

• private use is contractually prohibited, other than for home to work journeys where the employee is required to take the van home
• private use is restricted to home to work and the van is shared between a number of employees
• vans are "permanently suitably equipped" for work purposes, e.g. are full of racks of tools and where there is little or no scope for using the van for anything else.

2. Shared vans

The intention is to remove the complexity of calculating the charge for shared vans, in particular by reducing the level of record keeping required to calculate the charge. No proposals are made for how this simplification might be achieved.

3. Environmental benefits

There is no immediate way of imitating the "environmentally friendly" approach to taxing company cars based on CO2 emissions. The alternative methods proposed are to:

• remove the lower scale charge for older vans
• introduce a higher scale charge for older vans
• apply a premium for vans that do not meet the Euro IV emission standards that will be mandatory for all new vans from 2006
• provide discounts for vans that run on alternative fuels, such as LPG and CNG.

4. Fuel benefit charge

The existing van scale charge covers the provision of fuel for private use. The Government's view is that this may encourage employees to switch from company cars to vans that are suitable for private use. The proposal is to introduce a van fuel charge for the provision of free fuel, in addition to the charge for a van that is available for private use. The charge would vary according to the level of the van charge. Employees would be able to avoid the charge by not accepting free fuel, or by reimbursing the employer for any private travel.

The consultation document seeks views on these proposals and, in particular, on a wide range of relevant questions. Employers that provide vans for employees to use should obtain a copy of the document and consider influencing the design of the new charges by sending in their comments. The closing date for the consultation is 31 July 2003.
(Source: www.inlandrevenue.gov.uk/consult_new/vans.pdf )
...back to 9 May 2003

Car or van?

Is a double cab pick-up a car or van? In advance of the outcome of its review of van taxation, the Revenue has given temporary guidance for the 2002/03 tax year.

For tax purposes, a van is defined as a vehicle that is designed primarily to carry goods or other loads and that has a design weight, i.e. a maximum payload, that does not exceed 3,500 kg, i.e. 3½ metric tonnes. There was never any real doubt that an estate car is a car and not a van. But the status of a double cab pick-up is not so straightforward. They are clearly designed to carry loads, but the double cab is as large and often as luxurious as a quality car.

The tax issue is significant. If the pick-up as classified as a van, the current reportable benefit is £;500, giving a tax charge to the driver of £;110 (at basic rate tax), even if free fuel is provided for private use. However, if it is classified as a car, it is taxed as a company car. To illustrate, a Nissan Navara 5-seat double top pick-up has a list price of around £;19,000 and CO2 emission levels of around 260 g/km, at the maximum of the scale. The car benefit charge for 2002/03 would be £;6,650, with a further £;4,200 if free fuel is provided. The driver would pay £;2,387 (at basic rate tax) if the pick-up were treated as a car.

The Revenue's approach to this problem for 2002/03 is to use the definition that applies for VAT purposes, namely that a vehicle with an ex-works payload of 1 tonne or more is not treated as a car. If the pick-up has a hard top, that is deemed to have a weight of 45 kg. Therefore, a double cab pick-up with hard top must have a payload of 1,045 kg in order to be treated as a van for tax purposes. The Nissan Navara 5-seat double top pick-up has a payload of 1,055 kg.

The tax position of these vehicles for future years will depend on the outcome of the Revenue's current review of company van taxation. Further information is available at www.inlandrevenue.gov.uk/cars/company_vans_info.htm .
Payroll Briefing 9 - 24 October 2002

Company van instructions corrected

The instructions given on P11D Working Sheet 3 for "vans available for private use" have, for several years been incorrect. The form stated, on both sides, that the number of days that a van is unavailable in a year is,

• where a van was first made available after 5 April, the number of days from 5 April to the day before it was made available
• where a van ceases to be available before 6 April, the number of days from the day it was last available to 6 April.

Applying these instructions according to their natural meaning results in the 5 April being counted as one of the days in the first situation, and the 6 April being counted in the second situation. The result, in both cases, is that the number of days a van was available would be understated by one day.

When the author raised this matter with the Revenue, the first response was that the wording had never caused any difficulty before. Further correspondence pointed out that it was more likely that employers would follow the instructions precisely rather than query the wording, and that there are many examples in the tax legislation where a "from" date is specified and it means that exact date, not the day after.

The point was accepted and Working Sheet 3 for 2001/02 now refers to "the number of days from 6 April (inclusive)" and "the number of days…to 5 April (inclusive)".
Payroll Briefing 221 - 12 April 2002