Many employers provide company vans to their employees for work purposes, but whether a van benefit in kind charge arises depends on the private use element.
Where no van benefit is declared on a Form P11D or processed via payrolling of benefits, HMRC’s 2016 guidance includes a new paragraph, not included in previous versions of the same guidance, which states that employers must be able to demonstrate that there has been no significant private use in theory and in practice.
It has always been difficult to get HMRC to accept “in theory” only anyway, but in light of the changes above, employers may want to rethink their current record keeping as HMRC continue to crackdown on Companies with vans in their accounts but no corresponding P11D reporting. This blog will outline good record keeping which will satisfy HMRC’s requirements.
If we start by looking at the requirements to be met in order for no van benefit in kind charge to apply, these are:
- The van must only be available to the employee for business travel and commuting and must not be used for private purposes except to an insignificant extent
- The van must be available to the employee mainly for use for the employee’s business travel
The term insignificant is not specifically defined, so takes the New Oxford English Dictionary meaning of ‘too small or unimportant to be worth consideration.’ HMRC’s guidance states that private use is considered insignificant in the following instances:
- If it is insignificant in quantity in the tax year as a whole (that is, a few days at most)
- If it is insignificant in quality (for example, a week’s exclusive private use is clearly not insignificant)
- If it is intermittent and irregular (the weekly supermarket shop is not insignificant, an annual trip to the rubbish tip would be)
- If it is very much the exception in terms of the pattern of use of that van by that employee (or their family or household) in that tax year
If an employer does not report a company van benefit but cannot prove that the above requirements are met, HMRC will insist that the van is a chargeable benefit, and this can result in a significant tax bill and hefty penalties.
HMRC can charge a £3,000 penalty for poor record keeping and a penalty of up to 100% of the tax due as well as collecting the tax and national insurance due on the benefit on a grossed up basis.
Furthermore, HMRC can backdate tax, with interest, and penalties for up to six years. If HMRC cannot be convinced that the requirements are met, the amount at stake can quickly become detrimental to a business therefore it is vitally important that sufficient records are kept.
HMRC suggest that useful information/records for demonstrating that the necessary criteria have been met include the terms and conditions on which the van is made available to the employee and mileage records showing actual use.
The terms and conditions should state that the van is to be used by the employee for business purposes only and should not be used for private purposes. Such terms and conditions could be included within the employee’s employment contract, a separate agreement could be signed or it could even be that these are included within a staff handbook and employees sign to confirm they have read and understood this. Any of these would prove that there is no private use in theory.
In terms of proving no private use in practice, HMRC will insist that driving records will be required. This could be from a GPS logging system or manually entered mileage records. This is not necessary per the legislation, although the guidance detailed above would suggest it is. We have won many cases on behalf of clients who have not had van mileage records, however it is always easier if these are available and e would suggest detailing the dates, start and finish locations, mileage and reasons for all trips as a minimum.
Other procedures that can help to further evidence no significant private use would include the keys being kept at the business premises and access being restricted. If the van insurance documentation also states that only business use is insured then HMRC will accept this as meaning no significant private use, and therefore no van benefit in kind charge, applies.
If you would like further guidance on record keeping for company vans or if you think it would be beneficial for a review of your current procedures to be carried out to identify any improvements, please contact Charlotte Stewart, Integrated Employment Solutions Manager (firstname.lastname@example.org) or your usual AAB contact.