If an employee is able to use a company van privately, a benefit in kind tax charge may arise. The exception to this is if the van meets the conditions for a pool van (basically one used by several employees and not generally taken home overnight by any of them) or if the private use is limited to the journey between home and work, any other private use being insignificant.
Van benefit charge
Unlike cars, the benefit in kind charge in relation to a private van is unaffected by the value of the van and, with the exception of zero-emission vans, its CO2 emissions. For 2020/21, the taxable amount for a van other than an electric one is set at £3,490. This means that where an employee has unrestricted private use of a company van, for 20202/21 they will pay tax of £698 for the privilege if they are a basic rate taxpayer and tax of £1,396 if they are a higher rate taxpayer.
Separate fuel charge
Where the employer also provides fuel for private mileage in the company van, a separate fuel benefit charge arises. For 2020/21, this is set at £666, costing a basic rate taxpayer a further £133.20 in tax and a higher rate taxpayer an additional £266.40.
Zero-emission vans – Policy reversal
Since 2015/16, the charge for a zero-emission van has been a percentage of the full charge, and that percentage has been increasing. For 2015/16, the taxable benefit of a zero-emission van was 20% of the full charge. By 2020/21, it had increased to 80% of the full charge and was due to increase further to 90% for 2021/22, being aligned with the full charge from 2022/23.
As a result, for 2020/21, the taxable benefit of an electric company van available for private use is £2,792; by contrast, an employee can enjoy the benefit of an electric company car tax-free in 2020/21.
At the time of the 2020 Budget it was announced that from 6 April 2020, to encourage employers to embrace electric vans, the benefit in kind charge for an electric van will fall to zero from 6 Aril 2021. Consequently, from that date, where an employee has an electric company van, they can enjoy unrestricted private use of that van without triggering a benefit in kind tax charge, rather than paying 90% of the full charge as had previously been the plan. This is quite a reduction.
Employers investing in new vans will be rewarded for choosing zero-emission models. Not only will employees be able to use the vans privately without having to pay tax on the benefit, there will be no Class 1A National Insurance for the employer to pay either. As an added bonus, because HMRC do not regard electricity as a ‘fuel’ for car and van benefit purposes, if the employer pays the cost of electricity for private mileage in a company van, there is no fuel charge to worry about either.
Getting it right
Let Holden Associates advise you when you change your company van, making sure you are tax efficient.