Buying a van means buying a vehicle that doubles as a storage and enhanced transportation option, as well as an advertisement for your business should you choose. For many, it’s an important logistical factor that opens up a range of possibilities that can take your business to another level. But what if your current cash flow doesn’t necessarily allow for the purchase?
In this article, Real Business will go over the tax liabilities of a business van, as well as tax reliefs you can take advantage of, sole trader and self-employed van finance options, the types of work that benefit most from investing in a van, and more.
Table of Contents
Methods Of Purchasing A Business Van
Buying A Business Van
To buy a van outright means buying the van in one lump sum and owning it as a business asset. This allows you to offset the capital allowance of the van against profits you make, reducing your tax liability. Capital allowances exist precisely for this reason – to allow a business to enhance its productivity and efficiency, thereby stimulating the economic growth of the country. The extent of these tax benefits depends on whether or not the van is solely a business investment, or if it’s used outside of the business. If it’s the former, the van will likely have 100% of its cost deducted from profits via an annual investment allowance.
If you are unable to buy the van due to a lack of finances, consider lending options, such as a bank loan. Of course, with any big loan, we would always advise getting professional advice.
The downside to buying a business van outright is, of course, the upfront cost. How you source the capital is up to you, otherwise, you may have to find an alternative method.
Renting A Business Van Via Monthly Payments
This method, of course, cannot be counted as buying a van at all. Instead, you pay monthly payments to use the van over time. Some deals involve allowing you to purchase the vehicle at the end of the rental period, but otherwise, this means that the van is not the property of your business, but the leasing company. Whilst you are liable for damages, you may not be liable for many, if not all, of the maintenance costs.
Furthermore, it’s worthwhile pointing out that there are likely to be additional costs if you go over any agreed mileage rates, and these can be quite steep to protect the vehicle asset costs.
Leasing To Buy A Business Van
This is a combination of the two methods above – you can lease the van initially through this method until the end of the rental period, allowing you to purchase it at that point. This is a good option for those who do not have the capital but know they will need the van for a longer period.
How Does HMRC Classify A Business Van?
How HMRC classifies your business van depends on its status and intended use. If a van is being used for nothing other than business purposes, there will be no personal tax liability applied. But if it is also assigned for personal use, much like a company car, it will be considered dual purpose – prompting a proportional tax application. It’s worthwhile to note that there could be legal consequences for claiming it solely as a business asset but then using it in personal journeys.
Limited companies ‘owning vans’ are not subject to the same personal tax rules.
Tax Rules For A Business Van
As we’ve outlined before, when purchased as business expenses, assets like a business van can be written off as tax relief. This applies to both sole traders, including self-employed individuals, and limited companies. A limited company, however, will have to pay company van tax. In both cases, tax relief can be applied for, and the reverse is true that personal use has to be declared.
VAT On A Business Van
If you are VAT registered at present, you can reclaim VAT paid on your van. The amount depends on the value of the van itself, bearing in mind that the standard rate is 20%. Keep all invoices and receipts for the van in the event of such a claim.
Insurance Considerations
Insurance for a vehicle is a very handy thing, as it protects you from damages that you may or may not have caused, depending on the level of cover. Insure your van for its market value, first and foremost, not its replacement value – and ensure that it’s covered for all activities you plan to undertake. If you are going to be carrying passengers then you will need to make sure that you have passenger liability insurance.
Advantages Of Fleet Insurance
If this is your first business vehicle, likely, you’re not going to need another anytime soon. That being said, if expansion is a strong possibility, or this is a subsequent business vehicle, consider fleet insurance. As the name implies, it covers a fleet of business vehicles as opposed to one in an overarching policy. This is useful for nothing else if not pure convenience and streamlining.
Final Thoughts
Buying a van for your business means enhancing overall productivity and streamlining business ventures. Understanding the tax implications and tax benefits available allows you to plan for expansion in a much smoother way.
Once you have considered all of these factors, you can then start to look at the different finance options available to help you spread the cost of buying a new van and compare van insurance quotes to get the best deal for your business.
FAQ: What type of work requires a business van?
- Courier businesses – The storage space allows for more items to be moved at one time, enhancing productivity.
- Construction – A foundational part of construction is the transportation of base materials.
- Domestic improvement/repair businesses – White goods repair, painters, decorators, and electricians can probably all justify the benefits of at least a small van to operate more effectively in their chosen trade.
- Mobile beauty and grooming services – A van is the perfect way to transport your mobile beauty and grooming equipment to and from appointments.
- Food delivery services – Some of these vans can be modified to keep things even cooler but either way, transporting larger amounts of food, cannot be done in multiple trips. It usually needs to arrive in one run.
