Is it cheaper to have a company car or van?
The tax implications of company vehicles
If you're self-employed in the UK, purchasing a vehicle is often essential for running your business. However, whether to buy a van or a car comes with important tax implications.
Vans and cars are treated differently for tax purposes, and understanding these distinctions can help you make an informed decision, particularly when it comes to company car tax, business expenses, and VAT reclaim.
What is a van?
HMRC defines as van as:
A vehicle primarily constructed for the conveyance of goods or burden of any description
A gross vehicle weight – fully laden – not exceeding 3,500kg
Tax Implications and Considerations
Whether you use the van for personal use
If you use the van for personal use, it's considered a benefit-in-kind (BIK) and may have implications for your personal tax.
Whether the company pays for fuel
If the company pays for fuel, it's also considered a BIK and will increase your tax.
Whether you can claim the full cost
If you can't claim the full cost of the van, you may be able to claim other work-related expenses, such as fuel, insurance, repairs, servicing, or breakdown cover.
Whether you can claim annual investment allowance (AIA)
You can claim AIA on vans, along with other non-car vehicles. However, you may need to pay tax if you sell the van after claiming AIA.
You can check a vehicle's logbook to see how it's classified. Vehicles with the classification N1 or N2 are taxed as vans, while cars are classified as M1 or M2. You can also consult a dealership to confirm if a vehicle is commercial.
Are Vans Exempt from Company Car Tax?
Vans are treated differently from cars when it comes to company car tax. In the UK, vans generally enjoy more favourable tax treatment compared to cars. If you purchase a van for your business, you can benefit from reduced tax liabilities under the following rules:
Benefit-in-Kind (BIK): If you're self-employed and use a van exclusively for business purposes (with only incidental private use), there is no Benefit-in-Kind tax to pay. This is a key difference compared to company cars, which attract BIK tax based on their list price and CO2 emissions, regardless of their primary use.
Private Use: Even if you use the van for personal journeys, the tax treatment is more generous than with cars. For the tax year 2024-25, the flat-rate Benefit-in-Kind charge for personal use of a van is £3,960, which is considerably lower than the BIK for a company car. If fuel is also provided for private use, there is an additional BIK charge of £757.
Van vs Car: What Are the Tax Implications?
When deciding between a van and a car for business purposes, it’s important to consider the distinct tax implications. The main areas affected are how vehicles are treated for expenses, capital allowances, VAT, and personal use rules.
1. Capital Allowances
Vans: If you're self-employed and purchase a van for your business, you can claim the cost of the van as a capital allowance, reducing your taxable profits. Under the Annual Investment Allowance (AIA), you can deduct the full cost of the van (up to the AIA limit, which is currently set at £1 million per year) in the year of purchase. This can significantly reduce your tax bill.
Cars: Cars do not enjoy the same immediate tax relief as vans. For cars with CO2 emissions over a certain threshold, only a portion of the cost (typically 6% to 18%, depending on emissions) can be claimed each year as a writing-down allowance. For lower-emission vehicles, the allowance is more generous, but the difference in the treatment of vans versus cars is still significant.
2. Running Costs and Business Expenses
Vans: You can deduct most running costs associated with a van, including fuel, insurance, maintenance, and road tax, provided the van is used for business purposes. These costs are claimed as business expenses, which will reduce your overall tax liability.
Cars: While you can also claim running costs for cars, the proportion you can claim will depend on the amount of business versus private use. For cars, HMRC tends to scrutinise private use more closely, making it harder to claim the full range of costs, especially if there’s significant private use.
3. VAT Treatment
Vans: If you're VAT-registered, you can claim back the VAT on the purchase of a van and its running costs, provided the van is used solely for business purposes. This can represent a significant saving. In cases of mixed-use (business and personal), you may be able to reclaim a portion of the VAT based on the business use percentage.
Cars: VAT on cars is generally not reclaimable unless the car is used exclusively for business. Given that most self-employed individuals use their cars for some level of personal travel, this means that VAT recovery on cars is usually off-limits.
4. Mileage Allowance vs. Actual Costs
An alternative to claiming running costs is to use HMRC's approved mileage rates:
If you use your own vehicle for business travel, you can claim 45p per mile for the first 10,000 miles and 25p thereafter (as at Jan 2025). This applies to both cars and vans.
Alternatively, for vans, claiming actual expenses (e.g., fuel, insurance, and servicing) may be more advantageous depending on your usage patterns.
For vans, mileage rates or actual costs are simpler to manage compared to the often complex calculations required for cars, especially if the car has significant private use.
5. Private Use and Impact on Tax
Vans: HMRC is relatively lenient on occasional private use of vans. As long as private use is "incidental" (e.g., driving home or detouring to a shop), it won’t trigger Benefit-in-Kind charges. This makes vans highly tax-efficient for small businesses and self-employed tradespeople who may use their van for personal reasons occasionally.
Cars: If you use a car for personal travel, you will be taxed on this personal use through the Benefit-in-Kind system. The higher the car’s emissions and list price, the higher the tax bill, making cars far less appealing from a tax perspective if personal use is involved.
The Practical Considerations
Apart from tax implications, the decision between a van and a car may also depend on practical factors, such as:
Type of business: If your business requires the transportation of equipment, tools, or large goods, a van is likely a more practical option than a car. Many tradespeople, delivery businesses, and couriers rely on vans for their daily operations.
Cost: Vans generally cost less to buy and insure than equivalent cars, particularly if you're considering a large estate or SUV. This, combined with the favourable tax treatment, can make vans a more economical choice overall.
Comfort: If you frequently travel long distances or need a vehicle for client meetings, you might prefer the comfort and image of a car. However, modern vans have improved in terms of comfort and features, often blurring the lines between commercial and passenger vehicles.
Choosing A Car Or a Van For Your Business
For self-employed individuals in the UK, choosing between a van and a car involves weighing both tax advantages and practical business needs. Vans enjoy far more favourable tax treatment compared to cars, particularly when it comes to Benefit-in-Kind tax, VAT recovery, and capital allowances.
If your business involves transporting goods or equipment, or you need to minimise your tax liabilities, a van can be a smarter, more cost-effective choice. However, if your work requires a more versatile vehicle with greater comfort for personal and business use, you may still opt for a car, understanding that it comes with higher tax obligations.
Changes for Electric Vehicles (EVs) - EV Road Tax
As of April 2025, EV owners will be required to pay Vehicle Excise Duty (VED) (also know as EV road tax) on their cars. The tax will initially be at the standard rate, which is £190 as of August 2024, though this amount may increase in the future.
Read more about Vehicle Tax from April 2025:
Ultimately, the decision should be based on your specific business requirements and the potential tax savings that each vehicle type can offer. Consulting with an accountant can help ensure that you're making the most tax-efficient choice for your situation.
Information correct as at 13/2/25
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