Buying a van for business is different to making a personal purchase, not in the process of the sale itself, but in the finance and taxation elements. Here, we take a look at how buying a company van works.
It sounds obvious, but the first thing to check when buying a vehicle through your business is that it’s classed as a van for tax purposes. Your dealer should be able to confirm it is, but if you’re unsure, HMRC has a list of vehicles that it classifies as cars or vans.
However you choose to purchase, whether it’s outright or on a Hire Purchase agreement, the relevant documents must be in the company’s name, and any payments need to go through the business bank account.
When buying a van for business use, your purchase is classified as ‘plant and machinery’ for corporation tax purposes. As such, the full cost can be written off in the year of purchase via a Capital Allowance claim. However, because only a percentage of the van’s cost is allowed in the business accounts as depreciation, this will result in a deferred tax charge adjustment.
Your company can also claim the full VAT on the van’s purchase price. Assuming the vehicle’s cost is more than £2k when purchased new, even flat rate VAT accounting can be claimed in full.
If you intend to use the van for personal journeys as well, you will have to pay a benefit in kind charge. For the 2016/17 tax year, this is £3,170. If you pay 40% tax, the income tax charge you’ll incur is 40% of £3,170 - £1,268.
The same applies if the company pays fuel costs. For 2016/17 the benefit in kind for personal use of fuel is £598, so a higher rate taxpayer would pay £239.20 (40% of £598).
These benefits in kind should be reported to HMRC on a P11d form. In addition, the company will have to pay Class 1a National Insurance on the total benefit. This currently stands at 13.8%.
Before buying a van for business, decide whether it’s a worthwhile investment based on your personal circumstances and the current legislation. It’s advisable to speak to your company accountant before committing to a decision; by doing this you can ensure it’s cost-effective and you understand the relevant tax implications fully.
When it comes to choosing a van for your company, why not visit our Vanwise dealership? Based in Harlow, we have a wide selection of used vans available, each of which has been thoroughly checked before going onto the forecourt. We also offer finance plans to suit your needs. Contact us today to find the perfect commercial vehicle for your needs.