Fleet News

Fleets warned over effect of BIK tax rise

Changes to the current system will mean van drivers could face huge tax hikes for using company vehicles for private use.

Under current legislation, the taxable benefit where an employee uses a company van for private use is £500 for vans up to four years old or £350 for vans over four years old. The employee also has to pay 12.8% National Insurance on the benefit.

From April 6, 2005 the tax and employer’s NIC can be avoided if private use solely includes the journey to and from work. This will take most drivers out of the BIK system altogether.

But from April 6, 2007 the standard charge for unrestricted private use will surge to £3,000 for vans up to four years old.

There are still grey areas surrounding the new legislation, mainly concerning what will be officially classed as private use.

The Inland Revenue says that ‘insignificant’ journeys will not be counted.

An Inland Revenue spokesman said: ‘Examples of insignificant use are an employee who takes an old mattress or other rubbish to the tip once or twice a year, regularly makes a slight detour to stop at a newsagent’s on the way to work or calls in at the local dentist’s on his way home.’

Examples of use which is not insignificant include using the van to do the supermarket shopping each week, taking the van away on a week’s holiday or using the van out of work for social activities.

Mike Evans, director of remuneration and benefits at PFK Accountants, said: ‘It is important that companies act now to implement new procedures to remove the tax charge and NIC cost from April 6 2005.

‘Failure to act now will result in a missed opportunity next year and could have huge cost implications for employers end employees from April 6 2007.’

Companies with restricted parking are likely to be worst hit as drivers may not want to take the vans home at the end of the day.

Evans said: ‘Many employees, such as engineers, will be hit by this substantial tax increase if using the vehicle for private use and will question whether this perk is worth having.

‘Now is the time to consider restricting the private use of company vans to home to work journeys only.’

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