Date of issue: 19th March 2007

MINIMISING THE IMPACT OF NEW COMPANY VAN TAX RULES

Independent chartered accountants Clement Keys are advising businesses to review their policy on the use of company vans following the government's reforms of the benefits-in-kind system and the introduction of new tax charges from 5 April this year.

Van drivers will see the taxable benefit rise from its current rate of £500 (or £350 for vehicles over four years old) to £3,000, irrespective of the age of the van. In addition, employees will incur a fuel benefit charge of £500 if fuel is provided.

Employees who regularly use a company van to do their supermarket shopping, take part in leisure activities or go on holiday will be liable for the new charge. A basic rate taxpayer with unrestricted use of a company van and a private fuel allowance could face a bill of £770 for the 2007/08 tax year whilst a higher rate taxpayer will have a bill of £1,400.

"While employees may be dismayed at the prospect of a large tax bill, those whose private use of a company van amounts to no more than commuting to and from work will, in fact, be better off", says partner and personal taxation specialist Shona Cutler.

This is because there will be no tax charge for employees whose only use of the van is to drive between their home and place of work. This kind of travel is classed as insignificant private use. This also applies to employees who are on call, those who take a vehicle home because they have a long journey the next day and staff who use a van on the odd occasion, perhaps to move an item of furniture.

In order to avoid the tax charge it is necessary to demonstrate that the private use is insignificant.

Businesses already operating a policy which expressly forbids employees from using company vans in their own time will not be affected by the new rules. However, employees and employers may need to provide H M Revenue & Customs with documentary evidence to show that private use of the van is not permitted.

"You must be able to enforce your policy and prove in writing that employees do not use company vans for private travel other than insignificant private use", adds Mrs Cutler.

"Demonstrating that you have a robust policy in place can be achieved by making it part of your terms and conditions of employment and amending contracts of employment accordingly. Managers will need to make regular checks to ensure employees do not flout the rules".