Acquiring any asset for your own limited company takes careful consideration. When it comes to a company van, you may want to think about whether it would be more beneficial to buy or lease. If it’s a car you’re after, then we would recommend that you read our article ‘Should you buy a Company Car or Personal Car’ for advice on which option would be the more cost-efficient.
It’s important to establish the difference between a car and a van as there are different tax rules for each. HMRC defines a vehicle as a van if it is primarily constructed for the conveyance of goods or burden and has a gross weight (fully laden) not exceeding 3,500 kg. Vehicles such as minibuses are not considered vans because their intended purpose is to carry people and not goods.
Buying a company van for your limited company:
Unlike buying a car, if you choose to buy a van outright, you can claim 100% of the cost as capital allowances. This is because HMRC classifies vans as plant and machinery and they therefore fall under the Annual Investment Allowance regime. This means that the entire cost of the van can be taken from your company’s taxable profits, essentially reducing your corporation tax bill. In addition, you’ll be able to reclaim any VAT paid on the van.
Leasing a company van for your limited company:
Fixed monthly payments may be the better option if you do not have the capital up front to buy a van outright. You won’t be able to claim for capital allowances as you do not own the vehicle, however the monthly payments can be offset against your taxable profits. Where the company van is being purchased through a finance lease, any interest charged can be set against your annual profits too. As with purchasing a van, you’ll be able to reclaim any VAT paid.
Private use of a company van:
If the company van will also be used for non-business purposes such as picking up kids from school or going to the supermarket, this creates a benefit-in-kind (BIK). This ‘benefit’ is subject to tax for both the company and the employee. Unlike a company car, HMRC have set fixed rates of tax to be paid for BIK on company vans.
BIK on the company van:
For the tax year 2020/21, a company will have to pay £3,430 tax where a company van also has personal usage. The employee receiving the BIK will also have to pay tax, dependent on their own personal income tax band. So, for those at the 20% rate, they will have to pay £686; and for those on the 40% rate, they will have to pay £1,372.
BIK on fuel:
Unless you have to supply your own fuel for any personal usage on the company van, the fuel itself is seen as a separate BIK which you will also have to pay tax on. For the tax year 2020/21 the company will need to pay £655. Again, the employee will pay tax dependent on their own personal income tax band – £131for those on the 20% rate and £262 for those on the 40% rate.
From purely a tax perspective, the option of a company van is usually more tax efficient than a company car. For one thing you can claim the entire cost of the van under capital allowances if bought outright, as opposed to only a proportion for cars. The fixed rate BIK tax is actually quite generous when compared to the sliding scale BIK rate for cars, as it means you pay a set fee despite the value of the van, its CO2 emissions, or how much personal usage is made of the company van.