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Van Or Car?
Ray Chidell considers the advantages of a company vehicle being classed as a van as opposed to a car.
The tax treatment of a van provided for the private use of a director or employee is considerably more favourable than that of a company car. This has led to serious consideration being given in some quarters to the use of a van in lieu of a car. While it may not be a realistic consideration for the family driver, the range of vans available may mean that it is worth thinking about for the driver who is normally alone in the vehicle.
Van Or Car?
Ray Chidell considers the advantages of a company vehicle being classed as a van as opposed to a car.
The tax treatment of a van provided for the private use of a director or employee is considerably more favourable than that of a company car. This has led to serious consideration being given in some quarters to the use of a van in lieu of a car. While it may not be a realistic consideration for the family driver, the range of vans available may mean that it is worth thinking about for the driver who is normally alone in the vehicle.
Advantages of driving a van
The tax advantages of driving a van rather than a car are now significant as the following comments demonstrate.
The maximum liability any individual will face for private use of a van is £200, being the benefit of £500 taxed at 40 per cent. Where there is shared use of a van, this figure is divided between the users accordingly. There is a further reduction for older vans. For an individual who makes only occasional private use of a van there is a chance to elect to be taxed on the value of only £5 a day of such use.
Where several vans are shared between several drivers, the legislation becomes complex but broadly the same principles continue to apply.
Significantly, there is no additional fuel charge for van drivers. Thus a driver can cover unlimited business mileage in an employer-provided van, with all costs covered by the employer, and still pay a minimal tax charge.
In addition, the employer will benefit where there is a reduced benefit in kind because of the consequent reduction in employer National Insurance.
Definition of van
Given the tax advantages outlined above, the distinction between a van and a car can be critical. To qualify as a van, a vehicle must be:
a mechanically propelled road vehicle;
of a construction primarily suited for the conveyance of goods or burden of any description;
of a design weight (that is 'the weight which a vehicle is designed or adapted not to exceed when in normal use and travelling on a road laden') that does not exceed 3,500 kg; and
not a motorcycle as defined in section 185(1), Road Traffic Act 1988. Broadly, this means that it must have at least four wheels.
Human beings are not 'goods or burden of any description' so a vehicle designed to carry people (such as a minibus) will not be a van for these purposes.
The question often arises as to whether estate cars can qualify as vans. The Revenue view (expressed in the Schedule E Manual at paragraph 3407) is that they can only do so if they 'have been permanently and substantially modified to change their construction' with the result that the second of the above conditions is met.
The Revenue has also issued guidance with regard to four wheel drive recreational vehicles and luxury off road vehicles, as follows:
'Luxury off road vehicles and four wheel drive recreational vehicles will usually count as cars. There are many different models of such vehicles produced by a number of manufacturers. Some, however, are produced as commercial variants which may fall in one of the exceptions from the definition of car.'
Instructions to local tax offices are that they should make a report to the specialist division of the Revenue before accepting that any 'outwardly conventional car' can be treated as outside the definition of car for tax purposes.
In the end, each case must be considered on its merits. However, an individual who drives a £20,000 vehicle, covering low levels of business mileage but with high private mileage, with all fuel paid for by the employer, could find his annual tax bill reduced by thousands of pounds if successful in arguing that the vehicle is a van rather than a car.
Finally, it should be borne in mind that if the vehicle falls outside the definition of both van and car, then other tax consequences may ensue.
Ray Chidell is a tax partner at Mazars Neville Russell. Ray also produces fortnightly employer tax bulletins and this article is based on one of the bulletins. To receive these free of charge, readers can send an e-mail note containing their name and company to: ETU@mazars-nr.co.uk.
