What are Benefit-in-Kind and who pays tax on it
Benefit-in-kind (BIK) are benefits which employees or directors receive from their employer but which are not included in their salary. They include company car/van, private medical insurance, gym membership, the list goes on!
Where benefits are taxable, tax is paid on the taxable value of the benefit. HM Revenue and Customs defines this as the cash equivalent value. This is usually the amount it costs the employer to provide the benefit. The tax is paid by both employer and employee.
Latest Update on Company Vans
What is Classed as a Van and its Tax Implications
Looking at any van, it should be clear to see that it is, in fact, a van. However, a recent tribunal judgement has changed this presumption, causing confusion for all. The recent three tribunal appeals concerning Volkswagen Transporter Kombi and Vauxhall Vivaro have set standards in stone unless overruled by higher tribunal. Both vehicles were originally traditional vans, with a second row of seats, but still capable of carrying 1 tonne of cargo. The result of the appeal was split, with VW Kombis classed as car but the Vauxhall as a van – this resulted in a large tax bill for both the business and its employees.
According to the tax legislation definition of a Van means a mechanically propelled road vehicle, which
- Is a goods vehicle – the construction primarily suited for the conveyance of goods
- Has a design weight not exceeding 3,500 kilograms
Looking at the entirety of the both vehicles, and taking all of its characteristics into account including the primary purpose of its construction, the Vauxhall Vivaro was found to still be primarily suited to the carriage of goods, however, the VW Kombi was considered to be a genuine multi-purpose vehicle, with no overriding primary suitability for either.
The judge stated that ‘The VW Transporter Kombi cannot therefore be regarded as a goods vehicle’ [Coca-Cola v/s HMRC (TC06082) 2017]
Accordingly, the judge decided that the VW Kombi should be regarded as a car for income tax and NIC benefits purposes.
Tax Implication of Van v/s Car
- 100% AIA capital allowances on the acquisition of the van
- 100% VAT recovery on the purchase of the van, in most cases
- Low on BIK
- Low fuel benefit
- 100% AIA not available, but you can get writing down allowances. Also for 2018/19 100% First Year Allowance is available if Co2 emission is below 50g.
- You will struggle to get any VAT back on the acquisition of the car
- High on BIK
- High fuel benefit
Caution is required for existing and new businesses who own or are looking to buy VW Transport Kombis or similar due to high tax costs. Our team of business advisors and chartered accountants in Watford and London will work with you to ensure you get the right tax advice. Get in touch with our experts today.