Question, I run my own limited company and I bought a company van on 1st December 2016 which I use for both personal and business use. I believe I will have some benefit in kind tax that I need to pay but I am not sure how to calculate this or how I am meant to report it, can you advise?

 

Company Van Benefit in Kind Tax

Answer June 2017

You are quite correct that vehicles purchased by a company with  personal use by an employee/director will attract a benefit in kind charge.

In the case of vans (as opposed to cars, which are taxed very differently) there is a flat rate of benefit that is charged each year that the van has any form of private use element.

For the 2016/17 tax year this benefit charge is valued at £3,170 (rising to £3,230 for the 2017/18 tax year).

In addition to the van charge, if fuel is also paid for in full by the company there is an additional fixed benefit charge of £598 (£610 for 2017/18).

A benefit in kind charge is taxed in two separate ways.

Firstly the company must pay class 1a national insurance at a current rate of 13.8% of the total benefits given to employees in any given tax year. This needs to be paid to HMRC by the company by the 19th July after the end of the tax year in question.

For example, the class 1a national insurance payable for the 2016/17 tax year is due on 19th July 2017.

Secondly, the individual is taxed on the benefit in kind value as if it were employment income. In many cases this is reflected in the tax code that HMRC issue each year but for the case of a director/shareholder it would usually be taxed via the self assessment tax return system and any additional tax would be due by 31st January 2018 for the 2016/17 tax year.

In the example of a van purchased on 1st December 2016 and made available to the director for personal use (including fuel), the class 1a national insurance due by the company for the 2016/17 tax year would be as follows:

benefit in kind calculations van 3

 

 

As you can see above, the total van and fuel benefit for the full year were the van to have been made available from 6th April 2016 to 5th April 2017 would be £3,768 and attract a company national insurance charge of £520 (rounded).

However, given the van was only made available from 1st December 2016 to 5th April 2017 (the end of the tax year) then there were only 126 days out of the 365 that it was available so the benefit is apportioned accordingly, leaving class 1a national insurance due of £179 (rounded).

The company would need to report this on a form called a P11d – these forms are available from HMRC and the easiest way to report is online.

The company would need to make the above declaration by the 6th July 2017 for the 2016/17 tax year with the liability paid by 19th July 2017.

As far as the individual is concerned the above benefit of £1,300 would be treated as PAYE income – the tax impact of this would depend on the individuals earnings but lets consider an example of a limited company shareholder / director who for 2016/17 extracted a gross salary of £8,000 and dividends of £35,000 which together took them to the higher tax band of £43,000. Lets also assume they have no other income to consider.

A benefit in kind charge of £1,300 will mean that £1,300 of dividends that were in the tax free personal allowance would now effectively be shifted into the higher tax band where the tax rates on dividends is 32.5%, so the personal tax impact would be £1,300 x 32.5% = £423 (rounded).

In many cases providing a van to an employee or director can prove quite tax efficient certainly compared to a company car- however as a general rule, benefit in kind tax rates on vehicles have been increasing yearly for many years now so you need to think about the longer term tax impacts.

 

Want more tax guidance? Check out our tax planning guide for limited companies HERE.

 


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