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Buying a company van

Thursday 10th April 2014

Company vans are taxed very differently to company cars and can be more tax efficient, below are the two options if you are thinking about buying a van.

If bought through your company

Vans are classified as plant and machinery for tax purposes. As such they qualify for 100% allowances under the Annual Investment Allowance regime. This means you get a deduction for 100% of the cost of the van to reduce your company’s taxable profits.

For example you have a taxable profit of say £100,00 you buy a van for £10,000, you get £10,000 off your taxable profit = £90,000 which is taxed at 20% = £18,000 you save £2,000 in Corporation tax as your tax would have been £20,000 before you bought the van.

The Benefit in Kind assessable van benefit if it is used regularly for private use is £3,000 and the relevant fuel benefit is £564. This means that if you use your van for private use your company will pay 13.8% NI on £3,564 and you will pay personal tax at 20% or 40% (depending on your income) of £3,564 each year.

Where there is an “insignificant” level of private use HMRC acknowledge that there is no benefit arising and these amounts do not apply.

Insignificant private use would be classed as, for example, calling at the doctors on the way home from an assignment. Using a van to do the weekly shopping or to go to the gym each day would not qualify as insignificant private use. If there is an insignificant level of private use clearly there are substantial tax benefits in utilising a company van compared to say a company car which would incur a benefit in kind charge.

The ongoing costs for the van, i.e. insurance, road tax, fuel, maintenance etc are all paid for by the company and tax deductible for Corporation Tax.

With regards to the VAT charged on the van, you would be able to claim this back from HMRC through your quarterly VAT return we prepare but do be aware that when you sell the van you will have to charge VAT on the sale and pay this to HMRC.

If you buy through the company then you should ensure all the paperwork is in the company name especially invoices so the VAT can be claimed back.

If bought personally

The second option would be to buy the van personally and charge a mileage rate of 45p per mile to the company. This would be tax free to you and would receive Corporation tax relief.

For example you buy the van yourself and do say 10,000 business miles per year, you charge your company 10,000 x 45p = £4,500 which the company pays to you. There is no personal tax to pay on this. The amount also reduces your taxable profit so if you had £100,000 tax able profit minus the £4,500 in mileage = £95,500 taxable profit x 20% = £19,100 which is a saving of £900 in Corporation tax.

If you chose this option then the cost of the van is not tax-deductible and neither is the fuel, insurance, tax etc, you must pay for these personally.

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