Despite wails of protest from the bakery trade over the past few months, it is now clear that van mileage is being taxed in a dramatic new way.
HM Revenue and Customs (HMRC) have introduced changes to the benefit-in-kind (BIK) tax rules for vans. As of 6 April, 2007, the charge for unlimited private use of company vans escalated from £500 to a massive £3,000. To add ’fuel’ to the flames, an additional £500 is now charged for those who use employer-provided fuel for private use.
For basic rate taxpayers, this equates to a total of £770 BIK tax and use of company-funded fuel - a huge difference from the £110 per year previously being paid. For van drivers charged at 40%, the joint cost of BIK van tax and fuel charge has risen to £1,400.
The industry’s view is that these increases are an overreaction by the Chancellor, who has sought to close a loophole in the tax law, but has placed a significant burden on thousands of van drivers and their employers. So why such a drastic measure? It appears to be down to the classification of a van.
Many double-cab pick-up vehicles, such as Mitsubishi Warriors, are actually classed as vans because they have a one-tonne carrying capacity. The increasing popularity of these vehicles as a status symbol of affluence, coupled with the benefits - until now - of relatively unchanged £500 BIK van tax, has resulted in a growth in executives choosing them as company ’cars’. Often featuring alloy wheels, darkened windows, leather trim and air conditioning, the only significant load many of these vehicles will carry is the family’s suitcases to the airport and they are therefore taking advantage of minimal private-use tax. It is this sector that appears to be the government’s main target for the hike in BIK van tax.
Many ’legitimate’ double-cab pick-up vehicles do exist. For many of our bakery trade clients, such a vehicle is vital. So what can the legitimate van driver do to avoid such a hefty blow to his pay packet? There are four key ways in which firms and their employees can react.
The first is for drivers to keep a detailed mileage record of business and personal miles. The government has said that personal miles ’within reason’ are allowed. Travelling to and from work to home is deemed acceptable. However, a trip to the shops once a week will incur a private-use tax charge.
Secondly, employers should ask staff to sign a declaration stating that they will only undertake ’acceptable’ private miles, as the responsibility is with the driver rather than the company. But it would be wise for fleet managers to support drivers, where possible, to avoid staff simply deciding that they would rather leave their vans at the works depot or premises, which is the third option.
Some companies’ fleets include thousands of vans. Finding suitable parking for this number of vehicles overnight is not something many fleet managers have the capacity to do. Being able to take vans home is therefore as handy for drivers as it is for the companies they work for. In some cases, it is thought that companies may find they have to supplement annual salaries to help compensate drivers for the new BIK charges - and this is obviously the least popular option to employers.
In introducing the new tax, the government has failed to recognise that the private mileage undertaken by the average van is negligible anyway. Most vans only feature two seats, are often sign-written, are usually large and therefore not easy vehicles to park and probably contain equipment or work gear. In most cases, these vans are not likely to be the primary family vehicle.
So it seems unfair that the government should take such a ’sledgehammer to crack a nut’ approach, penalising all van drivers, when only a small proportion flout the regulations. A more sensible idea would be to approach pick-up vehicles via number plate listings, rather than casting the increased tax net across all vans. Or perhaps the classification of a ’van’ needs to be re-examined.
Employers have two major choices in front of them; either take the hit on BIK and consider adjusting drivers’ pay to take this change into account or completely review their van policy. Neither option is attractive, but requires careful consideration as poor handling of such a potentially emotive issue can cause huge damage to morale and business efficiency.
* Dave Freeman is commercial vehicle sales manager at Appleyard Vehicle Contracts, part of ING Car Lease.