Updated from 1 April 2025 (for Corporation tax) 6 April 2025 for Income tax
Understanding HMRC van classification for tax purposes is crucial for businesses when choosing between vans and cars, as it directly impacts both tax efficiency and compliance.
Choosing A Vehicle For Your Company?
A company van might be the best option.
Vans are much more tax efficient for a business than cars for a number of reasons, and it’s worth understanding which vehicles are treated as vans cars and which as cars to inform a decision as to which would be most appropriate when considering a purchase.
A vehicle may be needed for carrying goods; or for employees who need to travel as part of their job, as a perk, or all of these reasons.
Many cars are no longer tax efficient for employees if they use the vehicle privately, which in effect includes home to work travel even if that is the only private use they make of the vehicle.
The benefit in kind in respect of the private use of a car is based on its list price and the level of emissions. Electric cars are very tax efficient if bought new, as the benefit in kind is based on only 3% of the list price. Cars with emissions above 50g/km are taxed on a sliding scale of up to 37% for emissions of over 170g/km
Compared to non electric cars vans carry a much lower rate of tax for the employee if used privately, as the benefit in kind is based on a flat rate of £4,020 no matter what the emissions
Why Vehicle Classification Matters for Tax Efficiency
Looking at the impact on business tax, the rate of capital allowances which can be claimed as a deduction from business profits for vans is 100% of the cost, whereas for cars the rate depends on the vehicle emissions. It is 100% for all new and unused electric cars. Cars with emissions of less than 50g/km only qualify for 18% of the cost to be written off annually, or if the emissions are above 50g/km then only 6% of the cost can be claimed annually against profits.
This has led to the increased popularity of vans as business vehicles, but care must be taken as what appears to be a van may not be for tax purposes, and some vehicles which appear to be cars may in fact be treated as vans and attract the more favourable tax treatment.
The definition of a for capital allowances purposes is any mechanically propelled vehicle other than:
- a motorcycle
- a vehicle of a construction primarily suited to the conveyance of goods or burden of any description (a goods vehicle), or
- a vehicle of a type that is not commonly used as a private vehicle and is unsuitable for use as a private vehicle (for example a London taxi)
In practice until 5 April 2025 any twin cab pick-ups with a payload of more than 1 tonne (effectively pretty much all of them) were treated as vans for tax purposes. However after 6 April 2025, HMRC have changed their guidance so that where a vehicle’s primary suitability for carrying goods isn’t clear it will no longer be treated as a commercial vehicle.
Because a double cab pick up is equally suitable for carrying goods or passengers it will no longer be possible to classify it as a van so it will be classified as a car for capital allowances purposes.(There are transitional rules for vehicles ordered before 1 April 2025 and 1 October 2025.)
For the purpose of calculating the benefit in kind arising on a double cab pick up where it is acquired after 1 April 2025 it will be regarded as a car, but such vehicles acquired before 1 April 2025 will continue to be taxed as a van until 1 April 2029.
The commercial versions of cars which are manufactured without back seats, or rear passenger windows to increase the load carrying capacity continue to be treated as vans (note it doesn’t work just to modify the vehicle after purchase it has to be originally manufactured that way).
When is a van not a van?
Crew vans which were constructed with an extra row of seats, for example the VW Combi vans became very popular as business vehicles on the basis that they would attract favourable tax treatment. However, HMRC took the point to court, and the courts concluded that as such vehicles were not in fact constructed primarily for the conveyance of goods, they were in fact cars for tax purposes.
We hope that by clarifying some of the HMRC van classification for tax purposes, you can make informed decisions that optimise your business’s tax strategy and avoid unexpected liabilities. If you have any other accounting questions, reach out to our expert accounting team for tailored advice.