Legal Q&A: Reduce your tax burden

Despite protests from many corners of the construction sector over the past few months, it is now clear that van mileage is being taxed in a dramatic new way. How can you reduce the tax burden?

How, why and when was the new tax regime introduced?

HM Revenue and Customs introduced changes to the Benefit In Kind (BIK) tax rules for vans as of 6 April. The charge for unlimited private use of company vans escalated from £500 to a massive £3,000. To add fuel to the flames, an additional £500 is now charged for those who use employer-provided fuel for private use.

What does this all mean for van drivers?

For basic rate taxpayers, this equates to a total of £770 BIK tax and use of company-funded fuel - a huge difference from the £110 per year previously being paid. For van drivers charged at 40%, the joint cost of BIK van tax and fuel charge has risen to £1,400.

What does the construction industry make of these changes?

The view from the industry is that these increases are an overreaction by the Chancellor, who has sought to close a loophole in the tax law, but has placed a significant burden on thousands of van drivers and their employers. So why has the Chancellor taken such drastic measures? It appears to be down to the classification of a van. Many double-cab pick-up vehicles, such as Mitsubishi Warriors, are actually classed as vans because they have a 1t carrying capacity.

The increasing popularity of these vehicles as a status symbol of affluence, coupled with the benefits - until now - of relatively unchanged £500 BIK van tax, has resulted in a growth in executives choosing them as company cars.

Often featuring alloy wheels, darkened windows, leather trim and air conditioning, the only significant load many of these vehicles will carry is the family's suitcases to the airport and they are therefore taking advantage of minimal private-use tax. It is this sector, we believe, that is the government's main target for the hike in BIK van tax.

There are, of course, many 'legitimate' double-cab pick-up vehicle drivers. For many who work in construction, such a vehicle is vital.

What can the legitimate van driver do to avoid such a hefty blow to his pay packet?

There are four key ways in which companies and their employees - who usually drive vans throughout the day and take them home in the evening - can do.

The first is for drivers to keep a detailed mileage record of business and personal miles. The government has said that personal miles, within reason, are allowed. The Chancellor has informed us that travelling to and from work to home is acceptable. However, a trip to the shops once a week will incur a private-use tax charge - one man's acceptable may not be so to the taxman.

Second, employers should encourage staff to sign a declaration stating that they will only undertake 'acceptable' private miles, as the responsibility is with the driver rather than the company. However, it would be wise for fleet managers to support drivers, where possible, to avoid staff simply deciding that they would rather leave their vans at the work depot or premises, which is the third option.

Some companies' fleets include thousands of vans. Finding suitable parking for this number of vehicles overnight is not something many fleet managers have the capacity to do. Being able to take vans home is therefore as handy for drivers as it is for the companies they work for. In some cases, it is thought that companies may find they have to supplement annual salaries to help compensate drivers for the new BIK charges - and this is the final option and obviously the least popular to employers.

In simple terms, what options do construction businesses have?

Clearly, employers have two major choices in front of them: either take the hit on BIK and consider adjusting drivers' pay to take this change into account, or completely review their van policy.

Neither option is attractive, but it requires careful consideration, as poor handling of such a potentially emotive issue can cause huge damage to morale and business efficiency.

Dave Freeman, commercial vehicle sales manager, Appleyard Vehicle Contracts, part of ING Car Lease