Commercial Vehicles are tax efficient which ever option you choose and provided your employees agree to minimal private use they won’t have to pay any benefit in kind tax on using the vehicle.
But its important to make sure the vehicle you choose is actually a van and not classed as a car. For example double cab pick ups are extremely popular and it makes a big difference whether a double cab pick up is treated as Car or a Van for tax purposes, in summary:
- Benefit in Kind on Cars is linked to CO2 where as on a Van its Flat Rate (and could be zero if your private use is insignificant)
- Vans qualify for the Annual Investment Allowance, Cars have restricted Capital Allowances
- You can reclaim VAT on Vans but its much harder to reclaim VAT on cars
HMRC have some guidance in EIM23150….
Under this measure, a double cab pick-up that has a payload of 1 tonne (1,000kg) or more is accepted as a van for benefits purposes. Payload means gross vehicle weight (or design weight) less unoccupied kerb weight (care is needed when looking at manufacturers’ brochures as they sometimes define payload differently).
Under a separate agreement between Customs and the Society of Motor Manufacturers and Traders (SMMT), a hard top consisting of metal, fibre glass or similar material, with or without windows, is accorded a generic weight of 45kg. Therefore the addition of a hard top to a double cab pick-up with an ex-works payload of 1,010 kg will convert the vehicle into a car (net payload reduced to 965 kg). Under this agreement, the weight of all other optional accessories is disregarded. HMRC has also adopted this treatment.
A double cab with a payload in excess of 1000kg can still be classified as a car if the taxman dealing with the case decides it is a car. You may have to justify a genuine business need for the vehicle.
Annual Investment Allowance
Since January 2016 the Annual Investment Allowance has been permanently set at £200,000, which means the first £200,000 you spend on assets, including Commercial Vehicles (vans), will be offset against your tax bill immediately. This applies to both the self employed and companies.
So if the buy your van, even if you get with a loan or on hire purchase, you should be able to make a big tax saving in the first year.
However, just remember that when you sell the vehicle there will be a balancing charge for tax, basically this means that the total tax offset will be the purchase price less residual value.
If you have already used up your AIA you will still be able to claim Capital Allowances.
If you lease the vehicle you can not claim AIA or Capital Allowances as you don’t own the vehicle.
If you buy the vehicle you will be entitled to full VAT refund, if you lease it you can reclaim the VAT on each Lease Payment (which slows down the recovery of VAT).
If you buy the Van when you later sell it you must charge VAT on the sale price.
Cash flow might be a reason to choose a lease as its likely the deposit will be less than if you get a loan or HP.
If you need different vehicles for different staff at different times, leasing might be a good flexible option.