Company Vans - Good news and bad news!

13 January 2005

Changes were announced in the 2004 Budget to the benefit of employees who use vans in the course of their duties and take these vehicles home at night. The first changes come into effect from 6th April 2005 with the remainder following in April 2007.

Currently taxable benefit charges of £500 and £350 for vans under and over four years old respectively apply to employees who have private use for their company vans, this benefit remains unchanged since 1993.

From 6th April 2005 employees who have vans that are taken home at night, but are not allowed to use their van for other private journeys except home to work travel will no longer incur a taxable benefit. Employees who are allowed extended private use of the van will continue to be charged a benefit of either £500 or £350. The new rules will remove the obligation to report many of the vans provided to employees on P11Ds although the Inland Revenue will require the employer to prove that their employees had not used their vans for private trips except commuting.

From April 2007 the £150 discount for older vans will be abolished and the scale charge will be raised to £3,000 for all vans. This will only apply to employees who are allowed the use of their van for private use other than just commuting. In addition, where fuel is provided for unrestricted private use an additional charge of £500 will be applicable. These huge increases for privately used vans will no doubt make the benefit much less attractive and will force employers to tighten controls.

Employers will therefore need to ensure that sufficient evidence is available to prove to the Inland Revenue that private use of a van has not been made. Compliance audits by the Inland Revenue will inevitably focus on this area, particularly where an employer has a large fleet of vans, since grossed up tax and Class 1A NIC on a benefit charge of up to £3,500 per van could be sought from an employer with insufficient evidence or a wrongly categorised van.

Definitive guidance and legislation will be published by the Government early this year, although many employers are already considering the impact of these changes and adapting new policies already.