Company van tax explained - What to expect from HMRC
Do you drive a company van? Here is what you need to know and expect when it comes to the HMRC, mileage and the tax that should be paid on company vans.
A company van (Light Commercial Vehicle, LCV) is used to carry loads with a maximum weight capacity of 3500kg, not including Heavy Goods Vehicles (HGV). Company vans are available to employees and are purchased or leased by the company - drivers do not own the vans.
Do I have to pay tax to drive a company van?
Employees are liable to pay tax on all private journeys which are considered as ‘significant private use’ - these being trips used by the employee for their own personal benefit, normally regular trips. If the company provides the employee with the benefit of personal use, unless tax is paid for the trips taken in the van, then it is not allowed.
Examples of significant private use of a vehicle provided by HMRC:
Regularly taking the van to a local supermarket
Using the van for annual holidays
Using the van outside of work for social activity
Employees do not have to pay tax on any journeys which are considered as ‘insignificant private use’ - considered a very rare trip which would not be conducted regularly by the employee. These journeys that would last for very short periods and at very odd occasions of the year.
Examples of insignificant private use of a vehicle provided by HMRC:
Taking large items to the tip a couple of times within a year
Regularly making a small detour to purchase a newspaper at a local newsagent on the way to work
Checking in at the dentist on the way home from work.
Situations do arise where the HMRC conduct regular audits on companies all over the UK, but how can you prove a trip to the shop was insignificant? The difference between these two trips would be purely from a HMRC compliance perspective - a driver's personal situation will not be taken into account.
HMRC compliance inspectors regularly check registration numbers of vans that they find parked in supermarket car parks (especially on weekends). A DVLA search is then performed to see who and where the van is registered to. If the registered keeper of the van is a company, then checks are made as to whether or not any associated company van benefits have been declared on their employees’ P11Ds. If not, they will then conduct an Employer Compliance Audit.
As a result of these random audits companies all over the UK are suffering large tax hits.
How can a company avoid insignificant private use of a vehicle?
HMRC want to see evidence to prove that vehicles are not being used for significant private use. They also want to see steps that the employer has taken to prevent significant private use. This shows that the company has policies and procedures in place to emphasise these laws and make sure that their employees are fully aware of these.
The employer and the employee can avoid any benefit charges linked with company vans or fuel by keeping sufficient records to show that the van is mainly used for work journeys and ordinary commuting. A lot of companies record their mileage manually using pen and paper, which is very time consuming. A lot of drivers with a very busy schedule tend to judge distances and times travelled. These inaccuracies can also lead to hefty penalties which has happened in the past.
What is required by HMRC for mileage records?
HMRC require the following information for mileage records:
Vehicle details
Driver details
Date
Where the journey began
The place/companies visited
Where the journey ended
The start and closing mileage
Total business miles
How to protect myself or my business from a tax penalty
ABAX, the fastest growing telematics company in Europe (Berg Insight, 15th September 2016), supplies digital mileage logs for mileage claims. ABAX Fleet automatically documents all driving via GPS, calculates mileage and distance, to minimise the amount of tax paid and eliminate the risk of HMRC penalty charges (following the recommendations from HMRC mileage claims for personal and company cars). This enables businesses to easily reduce their fuel costs and increase their customer service level to their customer base.
ABAX have helped many companies increase the control of their fleet, reduce risk of any HMRC audits as well as increase efficiencies. HMRC are constantly changing the tax laws around company vehicles, since the 2016 tax year, it is now a legal requirement for van drivers to record all trips taken in vans.