Renault: Van Tax Changes

Although companies operating van fleets have had three years warning of the change in tax rules, there is a widespread feeling that some businesses may not have revised their operating schedules to ensure drivers do not face the tax burden.

As a result, companies and their van drivers are being urged to discuss the tax changes immediately and contact local tax offices so tax codes can be changed.

From April 6, the scale charge for 'unrestricted' private use of a company van will rocket to £3,000 - up from £500 - with an additional new £500 charge for employer-provided fuel used privately.

Under these rules, basic rate taxpayers who have unlimited private use of their vans will pay 22% of £3,000, equal to £660 benefit-in-kind tax from 2007 - up from the current £110 a year for a sub-four-year-old vehicle - and a further £110 for using company-funded fuel privately. The equivalent charge for 40% tax-paying van drivers will be £1,200 plus a £200 fuel charge. In addition, employers' Class 1A National Insurance contributions will also soar.

Under the new rules HM Revenue & Customs says van drivers will escape any tax payment if their company van is limited to 'insignifant' private use. This might include:

- Home to work journeys
- Stopping off at their local newsagent for a paper and a bar of chocolate or dropping their children off at school on the way to work
- Taking an old mattress or other rubbish to a tip once or twice a year
- Stopping off for a dental appointment on the way home from work

However, the new tax rate will apply if van drivers use their company van to:

- Undertake the weekly supermarket shop
- Travel on a week's holiday
- Make regular social trips outside of working hours

The onus is on both employers and employees to prove to the taxman that no tax is due - HMRC estimates that around 85% of van drivers should pay no tax.

As a result, HMRC says that employers should keep records to show that private use is restricted to 'allowed journeys' and so be able to prove that no tax should be paid. This may include making the conditions clear in employment contracts or asking employees to sign a statement acknowledging company policy on what use is allowed and any disciplinary consequences.

Employers and their van drivers have also been told to keep detailed mileage records to prove that no tax and NIC charges are due.

It is widely believed among tax experts that some companies, particularly smaller businesses operating light commercial vehicles, may not have any mechanism in place to enable them and their drivers to prove that vehicles are not used privately.

Keith Hawes, Renault's Director of Fleet and Commercial Vehicle Operations, said: "It is imperative that companies have robust systems in place or else their drivers will find themselves paying hundreds of pounds in benefit-in-kind tax which may not in fact be due."

Finally, where employers consider that employees should pay tax on less than the full scale charge they may also have to be able to show:

- If a van is shared, by whom and in what proportions
- Periods of 30 or more consecutive days when a van was incapable of use
- Contributions paid by any employee who had private use of a van.

Simultaneously, HMRC is removing the long-standing reduced tax charge on vans over four years old, which it says ends the existing incentive for companies to operate older generally more polluting vans - Renault.