In issue 1 of Topical Tips we highlighted the substantial tax savings that could be enjoyed by having the private use of a company van rather than a company car. In issue 27 we reported that the Inland Revenue had backed down from fighting this situation and had reluctantly accepted for the short-term that a vehicle that satisfied the definition of “van” for VAT purposes would also be a “van” for income tax purposes. The Inland Revenue has recently published further information on this topic on its web-site. (A leaflet can be downloaded athttp://www.inlandrevenue.gov.uk/leaflets/c1.htm)

Impending changes

The Inland Revenue has long thought that the law is in need of reform (i.e. tighteningup), and a consultation process has now been initiated in advance of the law being changed, probably with effect from 6 April 2004.

Bizarrely, the Inland Revenue stresses the need for a simple and clear new basis for taxing company vans but proposes a regime that will be neither. The consultation process is still in its infancy, however the Inland Revenue is clearly pressing for the following changes:

1. To have a low scale charge for vans where there is no private use other than home to work journeys (how this would be defined is not clear).
2. To abolish the reduction to the tax charge for older vans or even make older vans subject to an increased tax charge.
3. To introduce benefits that are based on the CO2 emissions of individual vans (but it concedes such data is not currently available).
4. To introduce reduced tax charges for vans that use “green” fuels.
5. To introduce a separate fuel scale charge for van users, varying subject to the level of the van’s private use.

(Changes 2, 3 and 4 are proposed as “Environmental Benefits”, missing the point that employees are supposed to be taxed on the benefit to them.)

The Inland Revenue’s aim

This is clear. It believes that people have been swapping heavily taxed company cars for lightly taxed vehicles that are car-like, but technically vans (e.g. luxurious double cab pick ups). It wants to put such vehicles back on a company car style footing whilst having a low tax regime for genuine trade vans. It is likely that we will end up with a complicated and subjective regime under which everybody pays more tax, and the compliance burden on employers increases dramatically.

Barnes Roffe Topical Tips

• The current company van regime will continue to at least 5 April 2004 and substantial tax saving opportunities remain available.
• Arrangements implemented now must recognise that less favourable rules might be introduced from 6 April 2004 and may need to be changed at that time.
• Van-using employees should be warned of the potential changes and consideration should be given to prohibiting private use other than home to work travel.