Vehicles might be an integral part of the running of your business. Employees may be provided business vehicles, available for private use as a benefit. Whatever the reason be sure to understand what's involved and what the obligations are.
Method of Acquiring Vehicles
There are three main ways; purchase outright, hire purchase or lease.
Buying Business Vehicles
If funds are available or you want to borrow the money buying outright offers these pros and cons:
Advantages
- You legally own the vehicle
- Bank interest and capital allowances are deductable from taxable profits.
Disadvantages
- Maintenance is your responsibility.
- When ready to sell the car will have devaluated.
Hire Purchase
A deposit is paid and then vehicle is paid for in monthly installments. After a set payment period, a final option to purchase fee and the vehicle is yours.
Advantages
- No residual value risk, although you may include an option to take ownership at the end of the lease period for a fixed amount.
- Bank interest and capital allowances are deductable from taxable profits.
Disadvantages
- No legal ownership of the vehicle until the end of the hire purchase period
- For cars, the VAT paid is generally not recoverable from HM Revenue & Customs
Leasing a Business Vehicle
Similar to renting it over a period for set amounts. Once the period ends vehicle either can be returned or you have an option to pay a purchase fee to own the vehicle.
Advantages
- No residual value risk, although you may include an option to take ownership at the end of the lease period for a fixed amount.
- Deduct rental payments from taxable profits.
- Maintenance and road tax charges are often included in the monthly fee.
Disadvantages
- No legal ownership.
- Cannot deduct capital allowances from taxable profits
- Annual mileage limits apply, and you will incur hefty penalties if exceeded.
Rental may be more cost-effective if you need cars less often. Check out car rental companies such as
Europe Car or
Thrifty Car Rental
Operational Overheads
Ongoing overheads or costs do apply when operating motor vehicles.
Licences and Permits
You'll need
- Vehicle excise duty or road fund licences
- MOT certificates for vehicles over three years old
- Licences from the local traffic commissioner for drivers of heavy goods vehicles
Insurance
Cheapest insurance is not always the best. Use well known companies with good support and can provide insurance advice for business vehicles. If the business relies on vehicles it could be very damaging for your livelihood.
- Third party insurance is the minimum insurance cover and is mandatory. It covers the drivers' liability for injury to others, including passengers, and damage to other people's property resulting from use of a vehicle on a road or other public place.
- Fire and theft cover is often added to third party cover. Adding protection against theft or damage from fire.
- Comprehensive insurance covers damage to your vehicle.
- Consider damage and theft insurance for goods being transported
Norwich Union van insurance
Swinton van insurance
Swinton commercial van insurance
Norwich Union motorbike insurance
Other Operational Overheads
- Routine servicing of vehicles and MOT certificates if required
- Repairs for scratches, wear and tear, accidental damage
- Fuel. Consider alternative fuel systems, these could make a significant difference to the running costs.
- Cleaning
- Parking costs
- Congestion and toll charges
- Garaging or parking for vehicles stored at business premises
- Additional security features - eg immobilisers
- Installing additional time saving features such as:
satellite navigation systems
tracking/driver locating systems
- Breakdown/road recovery membership from organisations such as:
the AA
the RAC
Green Flag
Tax Implications for Your Employees
Providing employees with a business vehicle they can use for personal activities is classed as an 'employer benefit' or 'benefit in kind'. They will get charged tax on this similar to wages tax. They can also be charged tax on the cost of fuel if it's supplied by the business.
The rate taxed is calculated as a percentage of the vehicle's cost and the percentage is based on the carbon dioxide (CO2) emissions of the motor vehicle.
More information on
company car and van taxation and benefits is at HM Revenue & Customs website.
More information on
Fuel Consumption and CO2 Information is at the VCA website.
Tax Implications for Your Business VAT
Must be paid in full on vehicle purchase price if car is made available for private use.
National Insurance
You will be liable to pay Class 1A National Insurance contributions on motor vehicle and fuel benefits provided to employees.
Tax relief
Claim these deductions against business profits:
- The cost of vehicle purchase. Unless the car has low CO2 emissions you cannot claim its entire cost in the first year as your business continues to benefit from use of the asset in subsequent years. This concept is called capital allowances, where the allowance you can claim is worked out as a proportion of the cost over a number of years.
- Interest paid on bank loans used to acquire the motor vehicles
- Maintenance and running costs
- Rental payments, if you have leased the MOT
Reclaiming VAT
VAT can be reclaimed on purchase, if registered for VAT, if vehicles are used solely for business purposes. If used for private use VAT can be reclaimed on repair costs and maintenance.
Driver Management
Legal responsibility falls on you to see business related drivers do not drive dangerously. Encourage them to behave responsibly as it reflects on the company.
Recruitment
When hiring drivers, check for appropriate licences, experience, and capability to do the job. Remember to take-up references for anyone you employ.
Health and safety
- Require drivers to have regular medical checks.
- Train drivers in first aid in the event of an accident. Make sure they know about the insurance cover and details. Some insurance companies provide a driver accident pack for this purpose.
- Ensure drivers take into account the distance, time of day, weather conditions and any known road works, before travelling to allow enough time.
- You and your drivers are responsible for offences against drivers' hours and records rules.
Download advice on drivers' hours and tachographs from the Department for Transport (DfT) website (PDF).
- Give drivers advice on avoiding, and dealing with, road rage.
- Make someone responsible for carrying out routine vehicle safety checks
- Train staff to know how to load and unload safely
- Consider a written policy that provides information on safe driving on motorways or when tired, tyre safety and reversing.
- Advise drivers and staff on fuel efficiency, including respect for speed limits, avoiding frequent acceleration and hard braking, and switching off the engine when stationary.
Download a PDF leaflet on managing work-related road safety from the Health & Safety Executive (HSE) website.
Other useful sources of information include the
Freight Transport Association and the
Vehicle and Operator Services Agency (VOSA)
Employee and vehicle security
Employees need to be aware of basic security precautions such as
- Parking in well-lit and busy areas
- Keeping vehicles locked when unattended
- Activating immobilisers.
