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Markel Tax

24 May 2018

Tax advice: Employer-provided vans and deemed domicile rules

Every year, our tax and VAT helplines receive over 55,000 calls. Each month, we provide a round-up of topical news and below is a short summary of the key points our team has been discussing with accountants in May.

Employer-provided vans         

Under normal circumstances, where an employer provides an employee with the benefit of a van for private use, there is a tax charge under the benefits code. 

The definition of a van is a mechanically propelled road vehicle that is a goods vehicle and has a design weight not exceeding 3,500kg. 

The cash equivalent of the benefit needs to be reported on a P11D and for 2017/18, the reportable amount is £3,230 for conventionally fuelled vans, whereas for those vans which cannot emit CO2, the charge is 20% of the conventionally fuelled van benefit, £646. For 2018/19, the equivalent amounts are £3,350 for conventionally fuelled vans and 40% of that amount for the zero-emission vans i.e. £1,340.

The taxable amount is reduced if the van is not provided for the whole year or is unavailable for 30 consecutive days or more. It is also reduced by any private use contribution made by the employee. Further information on the taxable benefits can be found here.

There is a separate charge where fuel is provided for taxable conventionally fuelled vans. The cash equivalent is £610 for 2017/18 and £633 for 2018/19.

There is no tax charge where the benefit is provided primarily for business use, with private use being restricted to commuting and any other private use being insignificant. Insignificant use would be, for example, taking an old wardrobe to the tip but not taking the van on the weekly shopping trip.

There are special rules for calculating the cash equivalent where the van is provided under ‘optional remuneration arrangements’ (salary sacrifice) put in place on or after 6 April 2017. A comparison is made between the taxable amount as above (excluding any private use contribution made by the employee) and the amount of remuneration foregone, the taxable amount being the greater of the two. The same rule applies to the fuel charge.

Where the benefit would be exempt but for the optional remuneration arrangements, the cash equivalent is zero.

Deemed domicile rules from April 2017

Even if you have clients who are not UK domiciled under general law, they could be deemed UK domiciled with effect from 6 April 2017 for Income Tax and CGT purposes. The deemed domicile rues for IHT which have existed since 1975 have been amended with effect from the same date. 

When considering a client’s deemed domicile status, there are three scenarios that need to be applied:

  1. Was the client domiciled in the UK under general law at any time in the last three years?

  2. Is the client a ‘formerly domiciled resident’?

  3. Has the person been resident in the UK for at least 15 out of the last 20 tax years preceding the current year and for at least one of the four tax years preceding the current one?

The first rule means that deemed domicile status is applied to an individual who has left the UK and has taken action to lose their UK domicile under general law i.e. they have acquired a domicile of choice elsewhere. Effectively, they will remain UK domiciled for the three tax years after their UK domicile has been replaced with the new domicile of choice. 

The second rule came in with the April 2017 changes and will effect those who were born in the UK with a domicile of origin in the UK and where the individual is resident in the tax year in question and was also resident for one of the two preceding tax years. 

The third rule applies to those who come to the UK and remain resident for a prolonged period but have not actually acquired a UK domicile of choice. It is important to remember that the rule applies to any 15 out of the last 20 years; it does not have to be 15 years in succession. Clients who left the UK and ceased to be a UK resident on or before 5 April 2017 are not caught by this rule whilst they continue to be non-resident.

Next article in series

23 May 2018

Check of locums employment status letters

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