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New £3,500 tax trap awaits company van users at the supermarket

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12th Apr 2007
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"White van" traders are caught in a benefits in kind trap and could risk assessments running into four figures under rules that took effect on 6 April for using company vans to do their weekend shopping at the supermarket, warned lecture Brian Ogilvie at AccountingWEB's tax tips for business seminar this week. John Stokdyk reports.

"I'm sure the Revenue intends to stalk the car parks of this country to trap drivers of branded vans," he warned the audience at the Law Society on Thursday 12 April.

Ogilvie's observations on the new company van benefit in kind rules emerged during a discussion of the issues affecting sole traders, partnerships and limited companies. Linking the new van rules to the employment status requirements of the new Construction Industry Scheme, which also came into effect on Good Friday, the lecturer warned subcontractors and their advisers to think twice about opting for employee status to avoid CIS deductions.

"The danger is that HMRC might then go in with a combined CIS/benefit in kind enquiry and hit them with the £3,000 van benefit charge," he said.

The new rules, set out at www.hmrc.gov.uk/vans exempt employees from having to pay tax on their company van as long as the vehicle is used mainly for business. They can drive to and from work in the van and for occasional trips classed as "insignificant private use". Examples of insignificant use cited by the HMRC guidance include occasional visits to the rubbish tip, and slight detours on the way home from work.

Using the van for after work social activities, on family holidays or to do the weekly shopping do not count as "insignificant".

Where a van is used for private purposes, the previous £500 charge goes up to £3000 for the 2007/08 tax year and beyond, with tax on an extra £500 if the employees get free or subsidised fuel for private use.

"I'm sure HMRC included the supermarket line on purpose so they could go to Sainsbury's at the weekend and trap branded vans," Ogilvie suggested.

This is also the view of AccountingWEB contributor Simon Sweetman, who expressed concern for one-man companies such as plumbers and builders who need vans to carry the tools of their trade. "The van scale charge seems to me to be designed to wind up situations. Our legislation ought to be cleverer than this," he wrote.

Coincidentally, Ogilvie's briefing included a round-up of recent tax cases included two relating to personal use of company vehicles. In Philip Shaw v HMRC, the government won a High Court appeal based on the Upton (trading as Fagomatic) precedent where a Lambourgini used for cigarette deliveries was also insured for personal use and therefore deemed "available" for tax purposes.

However, in the case of CCE v Elm Milk Ltd, the taxpayer, a limited company, had logged a restriction on personal use of the vehicle in the minutes of a board meeting - and won his appeal. While this could be a minor plus point in favour of incorporation, Ogilvie warned that a second car must be available for personal use and for advisers to remember that output tax will be due when the vehicle is sold.

The two-hour seminar included updates on:

  • Measures in the 2007 that will affect small businesses - most of which come into effect from 2008 onwards
  • A nine-point checklist on the news CIS
  • Personal liability notices that can now be issued against directors for unpaid Class 1 National Insurance Contributions and penalties
  • Tax and VAT cases including: Demibourne Rowland (an important victory for the taxpayer whose claim that reliance on third party advice was a "reasonable excuse" for underpayments); Shaw; Elm Milk; and Empowerment Enterprises
  • The VAT flat rate scheme - pitfalls and planning.

AccountingWEB Tax Tutorials
'Tax tips for business' is one of AccountingWEB's programme of six seminars taking place during 2007 and will be repeated on 3 May in Newcastle and 7 September in Southamption. Events are also taking place that will cover extracting profits from a small business, inheritance tax, property tax planning and planning for retirement.

AccountingWEB members who attend four seminars will be rewarded with a 1GB iPod Shuffle. Find out more on our events page or use the online booking form to confirm your place now.

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  • 2007/08 £3000 Company Van Benefit - Any Answers 28 March 07
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    Replies (4)

    Please login or register to join the discussion.

    avatar
    By AnonymousUser
    16th Feb 2009 14:45

    Vehicle tracking is insurance
    I too have heard the HMRC catching people using red deisel from my clients. A vehicle tracking system really is the best way to ensure that your van is being used for work purposes only. Find our more about vehicle tracking and how vehicle tracking systems work from Chameleon Direct's vehicle tracking guide - http://www.chameleondirect.com

    Thanks (0)
    John Stokdyk, AccountingWEB head of insight
    By John Stokdyk
    13th Apr 2007 16:59

    Clarification of the actual tax figure
    Rupert Russell of www.comcar.co.uk contacted us to point out that the article falls into the trap of equating the £3,500 benefit in kind charge with the amount of tax assessed on the benefit.

    He's absolutely correct and I apologise. I'm afraid these things can happen when a technology journalist turns up at a tax seminar.

    The amounts of tax due would be £660 for a person on the 22% rate, while a 40% taxpayer would be out of pocket by £1200. Rupert suggested paying a vist to his company's van tax calculator to confirm these figures, and to analyse the overall tax costs of any new vans you might be interested in buying.

    John Stokdyk
    Technology editor
    AccountingWEB.co.uk

    Thanks (0)
    avatar
    By AnonymousUser
    14th Apr 2007 20:20

    Accounting and marketing depts ...
    ... should talk to each other!

    I was astonised to hear on the radio the other day an advert for Autoglass. (well not the advert, but its content) It took the form of an 'employee' extolling the virtues of working for the company. The best bit, he said, was the fact that they are allowed to use their vans for personal use. Let's hear Autoglass's tax advisers try and convince HMRC that the vans are not available for significant private use when the staff complain about their tax bills!

    Thanks (0)
    avatar
    By Elenderil
    16th Apr 2007 17:07

    It's not just livered vans either
    Although I hesitate to admit to this but once upon a time I was an Employer Compliance Officer (I'm better now and I have had the sense of humour bypass reversed and everything). Don't forget that HMRC can (Like any other member of the public) and will run traces on unmarked vans to see who they are registered to if they feel it is worthwhile to do so.

    This used to be a common method of obtaining intelligence for HMRC when I was in the job. I don't know how common it is now.

    Thanks (0)