A guide to van taxation - everything you need to know

The taxation system for vans and van drivers is different to that for cars. Some areas of van tax are comparatively straightforward, others more complex. This guide will help you understand the current rules and rates in the 2016/2017 tax year, so whether you’re trying to find out more about road tax (VED), benefit-in-kind (BIK) or the difference between business and private use, this is the place to start.

The details below apply to all light commercial vehicles (LCVs) with a maximum gross weight – also known as the revenue weight – of up to 3,500kg.

Road tax (VED) rates for vans

Road tax – officially known as Vehicle Excise Duty, or VED – is the annual fee you must pay in order to legally drive your van on public roads.

Under current rules, the amount of road tax you pay for a car is determined by its CO2 emissions – the more it pollutes, the more you pay. For a van, however, road tax is charged at a flat rate, depending on the vehicle’s age.

For 2016/2017, the van road tax rate is £230 for 12 months, or £126.50 for six months. You can pay this as a single instalment, or split the amount over six or 12 Direct Debit instalments; the Direct Debit is more expensive for 12 months at a total of £241.50, but cheaper for six months, at £120.75.

These rates apply to all vans built after 1 March 2001; however, there is a lower rate for vans that fall into specific periods of Euro 4 and Euro 5 emissions regulation.

This sounds complicated, but it simply means that if you have a Euro 4 van registered between 1 March 2003 and 31 December 2006 or a Euro 5 van registered between 1 January 2009 and 31 December 2010 you will pay £140 for 12 months or £77 for six months, again with a choice of single or monthly Direct Debit options. As yet there is no similar provision for new Euro 6 emissions legislation.

If your van was built before 1 March 2001, you’ll pay a different rate depending on the size of its engine. For engine sizes up to 1,549cc (just over 1.5-litres) the rate is £145 for 12 months, £79.75 for six months; for engine sizes above 1,549cc it’s £235 for 12 months, £129.25 for six months. Direct Debit is once again available.

Benefit-in-kind rates for vans

Benefit-in-kind is taxation levied against any perks (benefits) you receive from your employer in addition to your salary – including access to vehicles. BIK is set at a flat rate for vans, and in 2016/2017 it stands at £3,170.

Find out more about company car tax by clicking here

This means an annual tax bill of £634 for employees at the 20 percent income tax level (that’s £52.84 a month), while those in the 40 percent band will be charged £1,268 (which is £105.67 a month).

However, benefit-in-kind only applies if the van is used for private journeys. Vans that are exclusively limited to business journeys are not subject to BIK tax.

What defines business or private use of a van?

According to HM Revenue and Customs – HMRC, the Government tax collection agency that deals with benefit-in-kind – you won’t have to pay anything if the van is used for business journeys only, or if it's a pool van rather than one linked to a particular employee.

A business journey is officially defined as a trip that is “made as part of work (eg a service engineer travelling between appointments)” or one “to a temporary work place”.

A pool van is a van that’s available for use by more than one employee, provided because it’s necessary for the job, and not kept at or near an employee’s home.

However, “insignificant” private journeys are also allowed within these rules – such as making a “slight detour” to buy a newspaper on the way to work, or taking a pool van home for the night if you need to make an early start in the morning.

Is van fuel subject to tax?

If you use a work van for private journeys and your employer pays for the fuel, you’re also subject to tax on that benefit. The current rate is £594 a year.

The amount of this that you have to pay is reduced if you can’t use the van for more than 30 days in a row, the fuel provision is withdrawn during the year, or if you reimburse your employer for the cost of the private-use fuel.

Lots of grey areas

As you can probably tell, there are plenty of grey areas here.

For example, the benefit-in-kind charge can be reduced if the van isn’t available for 30 days in a row, or if you pay your employer for your private use of the van. In instances where more than one employee has access to the van for private use, the benefit-in-kind value can be divided between them.

There are also exemptions to the private-use rule – one-off trips to the dump, for example. Take your work van on holiday, though, and you should expect to be taxed on it.

If you want to avoid unnecessary tax it is important that employer and employee keep records proving how and when the van was used – or not used – and whenever the cost of private-use fuel was reimbursed.

BIK taxation on electric vans

As an incentive to encourage businesses to switch to electric vans with zero emissions, the Government is subsidising the benefit-in-kind value.

For 2016/2017 – and again in 2017/2018 – the electric van BIK value is just 20 percent of the regular rate. That makes the total value £634 for this tax year instead of £3,170. Expect a small increase next year.

The 20 percent amount will be re-evaluated during the 2018 Budget, when it is currently expected to jump to 40 percent; the percentage will continue to increase until it matches the rate for regular vans, which it is projected to reach in 2022.

So make the most of this incentive while you still can.

What about tax on pickup trucks?

Any pickup truck that is classed as a light commercial vehicle is subject to the same flat rate tax rates as a van; hence the rising number of “lifestyle” pickup sales in recent years, as their financial appeal has encouraged some drivers to choose them instead of a conventional company car.

Find out more about the pros and cons of picking a pickup as a company car by clicking here

Also read: Van tax pricing may change before 2018