Tax & Accounting News

Employer-provided vans - huge tax increase from 6 April 2007

01/03/2007

The annual benefit in kind value for private use of a company van is currently only £500, but from 6 April 2007 this will rise to £3,000.

Unlike the current rules, there will be no reduction in the charge if the vehicle is over 4 years old, and an additional fuel scale charge of £500 will apply if fuel is provided for private use.

These changes will result in significant increases in tax for employees, and national insurance for employers.

As at present, the benefit in kind will be apportioned where two or more employees share the use of a van.

There are two circumstances where the charge will not apply: firstly, if the employer strictly prohibits private use, other than travel to and from work, and secondly if any private use is 'insignificant'.

For these purposes, HM Revenue and Customs state:

"Examples of insignificant use include an employee who:
- takes an old mattress or other rubbish to the tip once or twice a year
- regularly makes a slight detour to drop off a child at school or stops at a newsagent on the way to work, or
- calls at the dentist on the way home.

Examples of use which is NOT insignificant includes an employee who:
- regularly uses the van to do the supermarket shopping
- takes the van away on a week’s holiday, or
- uses the van outside of work for social activities."

If significant private use is to continue to be permitted, employees need to be made aware of the imminent tax increases.

If the increased cost of private use outweighs the actual benefit, it may be better either to prohibit private use and make other arrangements, or ensure that private use is 'insignificant', as defined above.

Please contact us if you require further information or assistance.

 

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