Tax status of company vans investigated

The tax status of company vans is being investigated by Her Majesty’s Revenue and Customs (HMRC).

KPMG has revealed that HMRC has issued a “detailed questionnaire” to a number of organisations requesting information about the policies they have in place to monitor the private use of company vans.

The initiative suggests that the Government is concerned that tax and National Insurance contributions are being underpaid on company van benefits, but the scale of its review is unknown.

An HMRC spokesman said: “Those who use a van solely for work purposes, or whose private use is insignificant, will not be subject to any taxable benefit in kind.

The information requested in HMRC’s questionnaire is detailed and includes, for example, the employer’s definition of insignificant private use, details of whether vans are fitted with mileage tracker devices and details of van policies for the past three years.

The problem for fleets is how the tax office defines ‘insignificant private use’. HMRC says it is insignificant if it is “very much the exception to normal use, if it is intermittent and irregular, and if it lasts only for short periods of time on odd occasions during the year”.
Private use employees pay tax on a £3,000 flat-rate value for the van and £500 for free or subsidised fuel for private use.

The tax status of vans has been a long-standing issue for fleets, especially where the job requires employees to take their van home at the end of the working day.

Alastair Kendrick, director, employment tax services at Mazars LLP, said: “HMRC need to accept that it is impractical to store vans in many cases at a place of work so allowing employees to take vehicles home without a tax charge is essential.

“Having said that, it is important employers have policies in place that make clear that the van cannot be used for journeys except for the commute and business use.”

If HMRC find that taxable benefits have arisen that have not been reported, it is likely that they will seek unpaid tax and NIC as well as interest and penalties for prior years, say KPMG in its Weekly Tax Matters round-up.
And, while tax liabilities are those of employees, HMRC may seek to recover these liabilities from the employer on a grossed-up basis.

Given that van and fuel benefits are charged to tax and NIC at fixed cash equivalent values of £3,000 and £500, respectively, this could be a significant cost for employers.
KPMG also warns that there may be VAT issues to consider in regard to the provision of company vans where HMRC find that the vans have been used privately.