Commercial Vans and Tax:
Commercial vans are a costly necessity for many businesses. There are however ways to reduce the financial burden, including various tax efficient routes.
There are no restrictions on claiming back the VAT on any business asset finance or lease, as long as your vehicle is considered commercial according to HMRC. If you use your van for business, you can claim back the VAT you pay on the finance.
What is classed as a commercial vehicle for tax purposes?
A commercial vehicle in the UK is defined as a vehicle used for business purposes, such as carrying equipment, providing services or transporting goods. A van is considered as a commercial vehicle.
Here’s the specific criteria set by HMRC which provides clarity on what is considered a ‘commercial vehicle’ for tax purposes:
- The vehicle must have a gross weight of 3.5 tonnes minimum
- The vehicle must be able to haul at least 1 tonne of cargo
- Be used strictly for business purposes only
A car-derived van has different requirements. To be classed as a commercial vehicle, car-derived vans must fit these requirements:
- Have a gross weight when fully loaded of 2 tonnes minimum
- The vehicle must built on a platform designed to build vans by the manufacturer
- Must not have any back seats or windows. If your vehicle has windows, you will have to tint them/make sure they are opaque.
As well as weight, there are other factors which HMRC use to determine a commercial vehicle:
Vehicle type:
- Vans
- Lorries
- Certain 4x4s used for commercial purposes (i.e. Land Rover Defender)
- Pick up trucks (i.e. Ford Raptor)
Use of the vehicle:
- Transport good or equipment
- Provide goods or services (i.e. delivery or repair)
- Carry tools or equipment for a trade
Seating and design:
Vehicles must be designed with a load area, up to 3 seats and no rear windows will likely qualify to be classified as commercial vehicles for tax benefits. Dual-purpose vehicles may face more scrutiny.
Tax Implications with van finance:
There are various tax allowances available for commercial vehicles:
- Benefits-in-kind
- Capital allowances
- VAT relief
Benefits-in-kind
If a business uses a commercial vehicle for private use, it may attract benefit-in-kind (BIK) tax. However, for vans and specifically-tailored commercial vehicles, there are more favourable terms. If your van is used solely for business purposes, you don’t have to pay any BIK tax. Those who are self-employed can also use their van for personal journeys and you won’t have to pay BIK tax, this is known as “insignificant private use”. In contrast, if your van is provided by an employer, they will have to pay BIK tax if it is used for purposes outside of business operations.
Capital Allowances
Your business can claim Capital Allowance on your van. This allows you to deduct a portion of the vehicle’s cost from your profits, meaning this portion isn’t taxed. Vans qualify under the Annual Investment Allowance (AIA), allowing your business to claim tax relief on plant & machinery goods. This allowance can be claimed on most plant and machinery goods up to £1 million. Electric vans currently qualify for 100% first year allowance.
VAT relief
If your business is VAT registered, you can often claim back the VAT paid on the finance of a van. The amount you use the van for personal use can affect this. It’s advised to keep a track of every journey in order to comply with correct tax implications.
Conclusion
There are many ways to reduce the financial burden when purchasing a van on finance, we advise you to speak with an accountant or solicitor who can guide you through which tax benefits you qualify for with your commercial van. When you’re ready to finance a new van for your business, get in touch with Mill Wood.
For over 25 years, we have been helping UK businesses to access finance solutions they wouldn’t be able to find on the high street.
We believe in excellent, honest, straightforward business. By working with us, you’ll have your own broker on the end of the phone rather than going through endless call centres.
Our specialty is in putting together compelling business cases for your finance requests. We take the time to understand your business, as well as your financial objectives.
Lenders trust our judgement and commitment to sensible, responsible lending. This reputation provides us with enviable access to competitive repayment terms and potentially wider affordability multipliers compared to the high street lenders.
