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Now BIK tax on vans used out-of-hours is set to rise 600% - also hitting employer's NI contributions - it's time to reassess how to handle private mileage, says Rupert Saunders
Now we are actually in 2007, it is time to think about vans - more particularly, whether you allow your company vans to be used for private mileage.
Why? Because the benefit-in-kind taxation on private use of vans is set to rise by 600% from 6 April. That's potentially bad news for your employees, but there is a hidden twist to this - your employer's Class 1A National Insurance contribution also rises by 600% and, if you provide even a token amount of free fuel for private use, could hit £448 per year, per vehicle.
It was the boom in sales of double-cab pick ups (which are classified as light commercial vehicles) that caused the Chancellor Gordon Brown to focus on the anomalies of van benefit-in-kind. He reckoned many people were avoiding tax by switching to double cabs. However, he soon realised this was a relatively minor problem and, indeed, there was a potential source of revenue here.
Van drivers currently pay tax based on a flat scale charge of £500 - that means £110 a year for a basic rate (22%) tax payer. In April the scale charge jumps to £3000, resulting in a £660 tax bill for your employee (or £1200 if they are a 40% tax payer). There is a further scale charge of £500 if you provide fuel for private use.
Meanwhile, you as a business are paying Class 1A National Insurance contributions (assuming the employee is earning more than £8500pa) at 12.8% of the scale charge. These have to be paid annually in arrears and are declared on the P11D form.
“It was the boom in sales of double-cab pick ups (which are classified as light commercial vehicles) that caused the Chancellor Gordon Brown to focus on the anomalies of van benefit-in-kind.” |
Rupert Saunders |
So the question is: are your employees aware of the increase in personal taxation, and are you happy to be paying up to £448 a vehicle more each year? And what can you do about it?
One obvious answer is to check whether the employee could be just as effective in a family hatchback. For instance, a five-door Fiesta Style diesel (list price: £10,460) is going to have a scale charge of around £1880 - considerably less than the £3000 that the equivalent car-derived van would attract.
Of course, that may not be practical. Hatchbacks are not as secure as vans if you are carrying tools or other equipment, and are more prone to wear and tear. On the other hand, they are more useful for the employee who wants to use the company vehicle for private transport out of hours.
And it is private mileage that is the issue here. If the employee just uses the van for work (and to get from home to the place of work) then no tax is payable. You might want to discuss this fact with your drivers. Simply banning them from private use is likely to be counter-productive but a token payment of say, £200 a year, to compensate might be welcome - and would save you money in the long run.
Rupert Saunders is a specialist in automotive finace and retail
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