Last month, we considered the most tax-effective way for a business owner to acquire a car through their limited company, looked at the different tax implications of leasing or purchasing, and of using the vehicle for their own personal use.
In this blog, we ask the same questions about commercial vehicles – the vans, car-derived vans and dual purpose vehicles that are the indispensable workhorses for a wide range of businesses:
What is the definition of a commercial vehicle?
A vehicle is not deemed to be commercial simply because it’s used by a business, but is classified as such by the Driver & Licensing Agency (DVLA) based on its manufacturing specifications. Any dealership will be able to confirm what constitutes a commercial vehicle, but often, there may be very little outward difference between a commercial and a non-commercial vehicle.
Lease or purchase. What’s the best way to acquire a commercial vehicle?
Unlike company cars, the vehicle’s original list price and its C02 emissions don’t influence the amount of tax relief you’ll be entitled to claim if you opt to outright purchase your commercial vehicle. Instead, you will be able to deduct the full cost of a new commercial vehicle from your profits before tax using your Annual Investment Allowance.
Although tax relief on new cars having CO2 emissions of 75g/km or less can be reclaimed in the first financial year, for all other cars relief will be spread over a number of years. However, with commercial vehicles purchased through a business, you can claim 100% tax relief in the year the vehicle is acquired.
A further consideration which will affect the tax treatment you receive will be how you plan to finance the purchase of your new commercial vehicle, and you should consult an accountant who will be able to explain the implications of different options to you.
Tax relief on leased commercial vehicles is treated in the same way as it is on leased company cars, with relief being applicable to the monthly payments you make for the duration of the lease arrangement.
Can I reclaim VAT on a commercial vehicle?
If your business is VAT registered, the ability to reclaim VAT on any vehicle you purchase – or on your lease payments – is likely to be an important consideration in your decision.
With company cars, no VAT can be recovered where private use is involved, and on leased cars, only 50% of VAT on the lease payments is recoverable, but with commercial vehicles the situation is very different. You will be able to claim back 100% of the VAT you pay on the purchase price or on your lease payments – regardless of whether or not you utilise the vehicle for your own private use, and you will also be entitled to recover VAT on all fuel the business puts into the vehicle.
It’s important to note that if you make any asset owned by your business available to yourself for temporary private use – including a commercial vehicle – you’re making a taxable supply of services. For VAT purposes, you will need to raise a nominal invoice from the company to you personally each month in respect of VAT on private usage, in order to demonstrate to HMRC that you’re contributing to the private usage of the vehicle.
What are the tax implications of using my commercial vehicle for personal use?
If you’re a business owner using your commercial vehicle for personal as well as business use, the amount of tax you will be liable to pay will be dependent on whether you are self-employed or running your business as a limited company.
If you’re self-employed, and have the use of a commercial vehicle for your personal use, HMRC considers this to be ‘benefit in kind’, and you will be treated in much the same way as you would be if you had private use of a company car.
The value of the benefit will be calculated based on your personal usage as a percentage of total usage, and added onto your annual income, and you will be liable for tax according to your personal situation.
For business owners running a limited company, tax for private use of a commercial vehicle is charged at a fixed, flat rate (currently £3,230 per year). A further fixed charge (currently £610 per year) is applicable if the company also provides fuel for personal journeys.
A private journey is any journey that’s not wholly business-related, and this includes commuting to and from your place of work – assuming this is not the same as your home.
Considering Acquiring a Commercial Vehicle? Make Sure You Talk To Inca First!
Although the difference between a commercial and a non-commercial vehicle is not always obvious, the difference in the way that tax is treated for both the business owner and their business can be substantial.
If you’re considering acquiring a commercial vehicle, we can advise if it’s your best option, and if it is, help you to go about it in the most tax-efficient way!
Call us for an initial chat now 01235 868888.