One of those areas we are seeing increasing activity from HMRC is around the use of company provided vans by employees, where a nil benefit has previously been reported on end of year forms P11D.
From April 2005 the tax rules changed to allow employers to report nil benefits where employees used their vans for the use of travel from home to work (i.e. for ordinary commuting). Prior to the change in rules, any use of vans for ordinary commuting was taxed. The conditions to qualify for the nil benefit are as follows:
- Employers were required to have a policy which prohibited any other private use of the van (apart from some “insignificant” private use); and
- Employers were required to demonstrate that, apart from ordinary commuting, employees used the vans for business use only (i.e. to travel to & from customers, suppliers, sites, etc)
A number of employers who had previously reported benefits stopped adding the benefit to P11D forms from 2005 and have done ever since.
As part of their employer compliance reviews, HMRC are targeting the use of company vans, particularly where an employer cannot demonstrate that employees have used the van for either business or ordinary commuting only. In particular, HMRC are taking advantage of the lack of records or monitoring of mileage by employers and are seeking to charge tax and NIC on vans going back to the change in the rules in 2005.
As the tax and NIC due on each van could be as high as £1,800 per year, the potential tax and Class 1A NIC liability backdated to 2005 could be significant.
Employers who have provided their employees with vans should revisit both their policy of prohibiting private usage and their monitoring of mileage records to ensure that they are robust enough to survive any challenge from HMRC.
Where required, employers should look to strengthen their policy and internal systems to ensure that they are not at risk of challenge.
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