If you’re thinking about leasing a van, it’s important to understand all the information first; including company van tax.
Company van tax is different from the standard road tax you pay when leasing or owning a car. And through our guide, you’ll understand what company van tax is as well as how much it costs and if you have to pay it.
What is company van tax?
Company van tax, also known as benefit-in-kind, is a tax against any perks or benefits you receive from your employer outside of your salary. That includes access to vehicles.
It’s only applicable if you use the vehicle for personal journeys as well as business. So, if you use your van solely for business, you don’t need to pay it.
How is company van tax calculated?
Company van tax is fairly simple to calculate as it’s a flat rate.
For the tax year 2020/21, the flat-rate van benefit charge is £3,490. To work out how much you have to pay, you simply calculate 20% or 40% of that £3,490 depending on which tax bracket you fall into.
So, if you’re in the 20% tax bracket, you pay £698 a year (20% of £3,490), or £58.17 a month. If you’re in the 40% tax bracket, you pay £1,396 a year (40% of £3,490), or £116.33 a month.
20% Tax Bracket
- you pay £698 a year (20% of £3,490), or £58.17 a month
40% Tax Bracket
- 40% tax bracket, you pay £1,396 a year (40% of £3,490), or £116.33 a month
The flat-rate van benefit charge usually rises marginally each year, so keep an eye out when the change comes in April 2021.
What do HMRC class as a van?
HMRC typically classes any vehicle with a gross laden weight of under 3,500kg which has a primary purpose of carrying and delivering goods as a van.
However, pick-up trucks and passenger vans can be tricky. Some are classed as vans by HMRC but others, cars.
For example, there are Dacia Dusters which are classed as vans and Mercedes-Benz Vitos classed as cars.
But there are a couple of ways to find out whether your vehicle is classed as a van. You can check the European Classification in its V5C (log book). If it’s N1 or N2, it’s a commercial vehicle and taxed as a van. Or, you can check the Government’s website.
How much does van road tax cost?
Van road tax is, thankfully, a lot simpler than car road tax. Rather than it depending on your vehicle’s CO2 emissions – as it does with cars – how much you pay for van road tax is dependent on your van’s age.
For any light commercial vehicle registered from 1 January 2011 onwards, you pay a flat rate of £260 a year.
If your vehicle is older, however, and falls into either Euro 4 (1 March 2003 – 31 December 2006) or Euro 5 (1 January 2009 – 31 December 2010), you pay £140 a year.
Registered from 1 January 2011
- you pay a flat rate of £260 a year for road tax
Registered before 1 March 2011
- Your road tax amount is dependant on its engine size. It currently costs £160 a year for an engine up to 1549cc, and £265 for anything larger
But if your van was registered before 1 March 2011, your road tax amount is dependant on its engine size. It currently costs £160 a year for an engine up to 1549cc, and £265 for anything larger than that.
However, van road tax is expected to change in April 2021, with a two-category approach – as you get with car road tax – likely to be implemented.
The changes would mean paying a tax rate depending on the van’s CO2 output during the first year from new and a fixed yearly rate thereafter.
Tax benefits of leasing a van
When you choose to lease a van, it can come with several tax benefits.
If your van is for business use only, and your business is VAT registered, you can claim up to 100% of the VAT back on your monthly payments and maintenance package. If it’s for both personal and business use, you can claim up to 50% back.
Also, like when you buy a van, your monthly payments can be classed as a tax-deductible expense when it comes to filing your tax return. As can any excess mileage charges you face when you hand the van back.
Van fuel benefit tax
If you use your van for private journeys and your business pays for the fuel, you’ll pay tax on it. This is known as van fuel benefit tax or Van Fuel Benefit Charge.
For the 2020/21 tax year, the flat rate is £655 for van drivers. However, like company van tax, you only pay a percentage of the total cost depending on your tax bracket.
So, if you pay 20% tax, you’ll be charged £131 a year (20% of £655), or £10.92 a month. And if you pay 40% tax, you’ll be charged £262 a year (40% of £655), or £21.83 a month.
Tax on electric zero-emissions vans
To encourage more drivers to go green, there are several tax benefits that come with an electric van.
No road tax
Instead of having to pay the flat rate of £260 a year – as you do in a petrol or diesel van – electric vans enjoy £0 road tax.
However, that’s only the case if your van is all-electric. If it’s a hybrid, you’ll still have to pay £260 each year.
Company van tax reduction
If you drive an all-electric van, you can enjoy a reduction in the amount of company van tax you pay.
In the 2020/21 tax year, the benefit-in-kind charge for an electric van is 80% of that of a petrol or diesel van – £2,792.
That means if you’re a 20% taxpayer, your company van tax is £558.40 a year (20% of £2,792), or £46.53 a month. And if you pay 40% tax, your yearly cost is £1,116.80 (40% of £2,792), or £93.07 a month.
- Your company van tax is £558.40 a year (20% of £2,792), or £46.53 a month
- Your yearly cost is £1,116.80 (40% of £2,792), or £93.07 a month
Over the year, that equates to an either £139.60 or £279.20 saving, depending on your tax bracket.
It’s worth noting, though, that for the 2021/22 tax year, your savings will drop if you go electric as the benefit-in-kind charge grows from 80% of the standard amount to 90%.
Van fuel benefit tax
As already covered, if you use your van for private journeys and your business pays for your fuel, you have to pay tax on it.
That’s either £131 or £262 a year, depending on your tax bracket.
However, for the purposes of transport, HMRC doesn’t class electricity as fuel, meaning you don’t have to pay any Van Fuel Benefit Charge.
How much tax can I save by getting an all-electric van?
Aside from lower running costs and sometimes lower monthly payments, you can save a significant amount of money each year on tax by choosing electric.
If you sit within the 20% taxpayer band, you could save up to £530.60 a year, or £44.21 a month on tax alone by choosing an electric-powered van over petrol or diesel.
If you pay 40% tax, that rises to up to a potential annual saving of £801.20, or £66.76 monthly.
Van tax benefits if you’re self-employed
If you’re self-employed, you can claim several tax benefits if you use your van for business.
According to HMRC, these benefits are:
- Vehicle insurance
- Repairs and servicing
- Hire charges
- Vehicle licence fees
- Breakdown cover
You cannot claim for:
- Non-business driving or travel costs
- Travel between home and work
Pick-up truck tax rules
Pick-up trucks are becoming an increasingly popular alternative to vans. They still provide plenty of space for transporting goods, while also offering more car-like creature comforts, interiors and handling.
Pick-up trucks that have a payload capacity of over 1,000kg are classed as light commercial vehicles (LCV) – so they fall under the same tax rules as vans.
However, to make things a little trickier, not all pick-ups are classed as vans, and it also depends on the spec of pick-up you choose.
For example, the Ford Ranger Wildtrak has a 1,033kg to 1,269kg payload limit, depending on which model variant you choose. That means it’s classed as an LCV and taxed the same as a van.
However, the sportier Ford Ranger Raptor only has a 680kg payload limit. That means it’s classed and taxed as a car, so you don’t get to enjoy the same tax benefits.
If you’re unsure whether your pick-up or a pick-up you’re looking at is classed as a car or a van, you can check its V5C, look at its payload capacity, or visit the Government’s website.
Insignificant private use
Insignificant private use is where any private trips made in your van are classed as “insignificant”. For example, making a slight detour on the way to work to pick up a newspaper.
If all private use of the vehicle is insignificant, then you don’t have to report it for taxation purposes – as you don’t if the van is for business use only.
However, if you use the van for private journeys outside of business hours – going to the shops or visiting family, for example – then you do have to report it and you’ll be taxed accordingly.
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