Tax treatment of Van Hire

Tax treatment of Van Hire

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I have a client who has taken out a contract to rent a van for 3 years. The van will be returned to the hire company at the end of this time. He is responsible for maintenance and repair (to reduce the rental cost) but not car tax. He has been told by the hire company he can claim the cost of rent and the authorised milage rate in his tax return.

HMRC have had four attempts at clarifying this and have said yes he can, no he can't, yes he can and no he can't! Current thinking after consulting experts at HMRC is no he can't it is car rental, petrol maintenance etc or authorised milage. My client has contacted me again after speaking to the car hire company and they have consulted their tax experts who say he can claim hire and authorised milage. This is turning into a nightmare with no one including HMRC able to point to a document or manual this comes from. Has anyone any experience in this?
Lesley Barnes

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By lesley.barnes
28th Feb 2007 10:11

Awaiting appeal
Thanks to everyone that as posted. I thought I would update you on the current situation. My client has asked me to appeal against the decision which I've done based on BIM 47701. I spoke at length to the tax inspector last week as to how he had arrived his decision that my client couldn't claim the 40p mile and hire costs.

The tax inspector explained that he had made extensive enquiries and there was no guidence for this situation. He had made a decision based on "commonsense" and the legislation had never been written with this situation in mind. I have asked him to look again and seek another opinion but I would suspect the decision will be the same.

If this is the case I will advise my client not to procede any further because he is a sole trader and hasn't got the money or the time to continue with what will be a small gain for him. He will need to put it down to experience and get promises from hire companies and advice from the tax office in writing in future.

I'm not sure whether the tax inspector was trying to frighten us off but he said that if we wished to appeal against his decision the matter could be referred to the tax commissioners but he would have to "look into my clients tax affairs and be satisfied they were in order first".

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By AnonymousUser
27th Feb 2007 11:06

It looks as if it depends ...
... upon the terms of the hire contract. Per BIM 47701 it says specifically that ownership is not required as long as the hirer is responsible for running and maintaining the vehicle. So the answer seems quite simple - if your client is responsible he can claim the 40p - if he isn't he can't. I have to admit I don't recall the history of this guidance but it looks concessionary as there are no statutory references. However, as I say the guidance is quite explicit so there don't seem to be any ifs or buts other than as stated.

If the client is not responsible for maintenance then the mileage rates do not apply. I'm afraid you may have to do it the old-fashioned way in that case, by working out the actual cost of business use! Alternatively, if the client is only responsible for running costs then I can't see any objection to him using the fuel-only rates plus any actual costs (adjusted for private use) which he is responsible for e.g. insurance.

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By User deleted
20th Feb 2007 16:49

Vans are covered Paul
At least I presume that is why the manual states that the 40p rate applies to the first 10,000 miles in "your car or van"

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By nick farrow
20th Feb 2007 12:35

related query
I had new client in Jan07 who had transferred his building trade to newco back in Feb06 -
However his 2 vans were subject to HP/finance lease agreements in his sole name so cannot be transferred to his company.
I have recommended that the company pay the fuel and running costs direct but will pay him as a continuing sole trader sufficient van rental to cover the hp interest and ongoing capital allowances - am I missing anything?

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By Paul Soper
19th Feb 2007 23:35

Clarification
Is the person hiring the van
a) an employee of another unconnected company - I have a delivery driver friend in exactly this situation
b) a self-employed driver using the van in their own business
c) a person carrying on the business through their own company where i) the company will 'own' the van - this is a finance lease after all or ii) the individual will lease the van themselves

As things stand at the moment neither the revenue's approved mileage rate (where the individual 'owns' the van) or the lower advisory rate (where the company owns the van) applies to vans anyway - they apply to PMVs only.

Bear in mind that FA2006, as I understand it, and it ain't clear, is going to have the effect that long-funded leases or those accounted for as a finance lease under GAAP will be treated as belonging to the lessee so the allowance will be normal capital allowances on the van, the finance charge as loan interest, and the running expenses.

The new rules will aply to leases not completed before 1 April 2007 and might explain why the lessors are selling this as hard as they can.

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By lesley.barnes
20th Feb 2007 09:46

The client is a sole trader
he trades as a handyman and has no connection with the company that he hires the vans from. One of the suggestions I have had from HMRC was that he could claim the hire as he would claim "plant" hire (because he is returning the van after three years) and the 40p/25p. Then the caller had second thoughts and retracted this because my client doesn't own the van and the 40p has the allowance for capital allowances. In his case the way we claim the allowances will make a significant difference to his tax bill because of his high milage.

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By User deleted
19th Feb 2007 18:03

Just a toe in the water but -
Although at one place in BIM 477etc the manual says that part of the mileage cost is deemed to cover depreciation and hence capital allowances, at another it says it is not necessary for the person claiming to own the car - simply for them to be responsible for the maintenance etc (though they do mention road fund specifically) - which suggests that although you can't claim CAs if its your car, you can still claim the full allowance even if it isn't. (or to put it another way, once again HMRC wooly thinking predominates)

And of course one is permitted to claim the business proportion of the Hire Purchase interest in addition to the mileage allowance.

Presumably the vendor's position is that the hire cost is either equipment hire and would be dealt with under that heading in the accounts, and the mileage allowance is motoring expenses, or that it's the same sort of animal as HP interest and is dealt with under a finance rather than travel heading in the accounts.

I must say I'd be tempted to advise HP and mileage costs myself, but there is nothing in the manuals, or Tolley or anywhere else that says that you CAN'T claim leasing costs in addition to mileage costs, in the same way that it specifically precludes capital allowances and mileage costs.

So for anyone who wants to be a test case . . . . . . . . . . .

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By lesley.barnes
17th Feb 2007 18:25

Update
You won't be suprised to find that the hire company have written to me questioning my professionalism as every good accountant should be up to date with tax laws. Suprisingly enough the document they sent was a sales document but no mention is made of the 40p/25p only the benefits of claiming the hire back on the tax return and lots of vague claims about how pleased the bank manager will be.

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By martinfoley07
18th Feb 2007 00:49

Lesley, if you are prepared...
...to make a nuisance of yourself, and can get the client sufficiently agitated, and he is a reliable witness about representations made to him, you really should have an aggressive pop at this one, and get the client to write threatening letters (ie draft them for him!!).

Maybe the client would have done the deal anyway, but the way he described it to you originally was straightforward material misrepresentation of financial benefits at the point of sale.
The SFA and Local Trading Standards folk will be interested if such a prima facie case can be made.
Make the hire company sweat a bit, even if nought comes of it.

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By neileg
16th Feb 2007 11:31

Evaporating advice
I've had a number of leasing/hire/vehicle companies trying to convince me that they have watertight employee car or van schemes that avoid or reduce tax liabilities. Usually, asking for this advice in writing is enough for the advice to evaporate.

On one occasion, I asked if the company would indemnify the employer against any liability. I don't even get a calendar from that company any more!

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By neileg
15th Feb 2007 16:55

Not both
He can't claim the van hire and the 40p mileage rate. He probably could claim the hire rate plus the fuel advisory rate.

Try here for the information http://www.hmrc.gov.uk/mileage/employee-factsheet.htm

This relates to employees, but this is applied to soletraders providing their turnover is below the VAT threshhold.

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By User deleted
15th Feb 2007 16:55

Break it down
The Revenue have a breakdown of what the 40p covers don't they? It sounds like it is just the fuel element which needs reimbursing which from memory is about 10p per mile, depending on engine size and fuel type.

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Euan's picture
By Euan MacLennan
15th Feb 2007 17:23

Fuel advisory rates
... and do not forget that the rates were reduced from 1st February:

Current Fuel Rates

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By User deleted
15th Feb 2007 19:01

Read The Smallprint...
"the car hire company.. ..have consulted their tax experts who say he can claim hire and authorised mileage"

Do you think the hire firm and its tax expert might wriggle by maintaining your client CAN technically claim both, albeit that he'll be taxed on the excess above (say) 40p mile?

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By martinfoley07
15th Feb 2007 20:42

not sure if.....
....hire company tax experts are deliberately trying to be opaque in wording or just lazy or just misrepresented.
Should be OK for rental costs plus authorised petrol only mileage rates.
(not 40p per mile authorised rate for total inclusive costs).

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By lesley.barnes
15th Feb 2007 21:41

Reassured
Thanks for these opinions - I feel reassured. My client rented the vehicle from the company because they told him he could claim his rental and 40p/25p milage. They told him they had found a loophole and that was why so many tradesmen were driving around in new vans!. The rental company now claim that they have a document that will back this up and they will email me a copy. I'm still awaiting receipt.

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By AnonymousUser
16th Feb 2007 08:18

Cant wait ...
to see it! It will be something stupid like the "business" pays for the rental but this is treated as drawings and then sole trader can claim 40p per mile on the use of their own vehicle!

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