Oct/Nov 2007

If your drivers use their company vans privately, the tax implications are now much more onerous. But you can apply your vehicle tracking system to monitor this 'Benefit in Kind' use, and save yourself money. Sharon Clancy reports

The number of light vans on UK roads has been steadily increasing for the past decade. One reason is that more companies are offering mobile services that need vans; another is that there is a trend towards down-sizing vehicles from 7500kg to 3500kg to avoid the additional costs of operating at the higher weight categories - including the need for a vehicle operator's licences. Using the smaller vehicles also saves operators from having to cope with tachographs, drivers' hours rules and six-weekly vehicle safety inspections.

One effect of giving drivers smaller vans, however, is that they are more likely to appeal for private use; and therein lies an issue. Historically, many drivers have always used their vans privately, and to date Her Majesty's Revenue and Customs (HMRC) has taken a fairly relaxed view on this. In the past, drivers were taxed £500 or £350 a year Benefit in Kind (BIK) depending on the age of the van.

However, the 2007 Budget changed this to a mileage-based system and upped the maximum BIK more than sixfold to a maximum £3,000 and to £3,500 if fuel is also provided. Although it is hard to quantify how many employees will be affected by the legislation, those already paying BIK face a potentially higher tax bill.

 

And that's why tracking companies have started to take an active interest in this issue. They have been monitoring the BIK increase attentively, and point out that affected employers themselves face cost increases, since 12.8 per cent National Insurance is payable on BIK. The more vans in the fleet affected, points out Quartix, the bigger the potential bill for employers.

FleetConsult markets the Dutch-made Accredis mileage-capture device in the UK, and managing director Simon Harris warns that van fleets are risking paying more tax. 'The effects of the Chancellor's budget changes will only become clear to many companies when they receive their tax bills at the end of the financial year, and fleet owners find they are paying much more to the Treasury.'

The changes mean that there is now a big incentive for van operators to record precisely the private mileages their employees are doing in company vehicles. While only time will tell how rigorously tax officers will apply the new rules, the opinion of tax specialists seems to be that the Treasury wouldn't have substantially raised the benefit unless it was planning to monitor companies' records in this area more closely.

The general consensus among those companies we spoke to is that there is a general lack of awareness over this issue, even though it could be a looming problem. TomTom Work thinks some companies are simply unaware of the issue, and suggests that fears about the potentially vast amount of paperwork involved could be putting other companies off taking action.

'Whatever the reason, the evidence is that a surprisingly large number of companies affected by these new tax rates are currently doing nothing about them,' says Thomas Schmidt, managing director of TomTom Work.

Prove it

A simple way of eliminating private mileage, of course, is to insist that all company vehicles are returned to the depot each evening. However, some of the efficiencies of mobilising a workforce arise precisely from workers not doing that.

The good news for van operators is that tracking systems can provide the solution at the same time as delivering other benefits. TomTom's Schmidt reports that many companies that already have bought TomTom Work for private mileage monitoring are reaping secondary benefits such as lower fuel bills, shorter task times and higher customer satisfaction levels.

'Our feedback suggests drivers really appreciate how TomTom Work is helping their employer satisfy HMRC about their vehicle usage, and so avoid the extra BIK tax.'

Local tax inspectors may take the view that simply proving the vehicle was stationery at weekends is sufficient proof. Other may demand more detailed breakdown - for instance, in situations where the employee has flexible working hours or more than one user drives the vehicle. Cybit argues that the only way to provide the Inland Revenue with evidence that the tax does not have to be paid is by producing accurate mileage and vehicle usage report.

Tracking logs

Tracking companies point out that the management reports generated by a Web-based tracking system will help track company vehicles twenty-four hours a day in real time, and thus provide evidence of vehicle location.

You may actually find that your choice of tracking system is determined by the way you decide to prove to the tax authorities what private miles have been incurred by employees. So do check that the tracking system will produce the reports in a style and format that suits the business - that's the advice here.

'Van-related BIK tax charges need not be a problem,' points out tracking system supplier Quartix's Andy Kirk. 'Our tracking logs provide detailed breakdown of business/private mileage for each day and the week as a whole. The logs are available in several formats, including Excel and XML, for importing to applications such as payroll,' he says.

He believes that a high degree of accuracy will be necessary for tax purposes. 'Incomplete or approximate records, showing business or personal trips rounded to the nearest ten miles, for instance, will not suffice for Revenue inspection, and could lead to a substantial fine.'

Masternaut's tracking system offers the option of a Driver ID key which ensures there is no confusion about who was driving at a particular time. An in-vehicle data terminal or PDA can be used by the driver to switch between working and non-working time.

The Accredis was designed primarily as a mileage data capture system that separates business and private mileage. Van drivers insert a chip carrying card into a dashboard-mounted reader linked to the vehicle's odometer, a GPS sensor and communications device. The push button device then determines whether the trip is business or private. There are two versions, Basic and Online - the latter allowing data to be uploaded automatically at the end of each trip. It can also be linked to a tracking system.

Trakm8 reports that construction companies are starting to recognise the need to monitor BIK for employees, and are seeing other benefits, too. 'The change in taxation has been a catalyst for companies adopting vehicle tracking technology and the benefits that it delivers,' comments Cary Knapton, chief executive of Trakm8.

'The majority of contractors are working on customer sites, and with tracking, they can monitor how long they spend on site so that they can meet service level agreements, which in turn helps reduce unauthorised work. They can also offer added value to their customers by providing them with accurate times of arrival, or locating the nearest contractor to another customer site.'

Geofencing

Some tracking systems allow you to place a virtual geofence around a site or even an employee's home address. If a tracked vehicle breaches a geofenced zone outside specified working hours, you will be alerted immediately by email. 'Any vehicle which leaves the premises outside normal working hours is deemed to be being used privately,' says Quartix's Andy Kirk. 'This doesn't cost anything and can be set up easily on the tracking company's Web site.'

Masternaut advises checking whether a geofencing report can be refined to highlight just those movements that occur outside hours. 'Otherwise managers will have to trawl through activity reports to identify private use of vehicles and the drivers using them.'

BOX-OUT ITEM

Jargon-free booklet

Eagle-i has sponsored a jargon-free booklet, 'BIK Explained', which spells out the changes to Benefit in Kind. It breaks down the new van charge legislation into easily understood components and reviews the options available to operators when constructing an HMRC-compliant van usage policy.

'Recent feedback from fleet operators suggests there is a great deal of confusion surrounding the new BIK van charges and what does or doesn't constitute HMRC compliance,' comments Ian Walmsley, Eagle-I's chief executive. 'Best advice from leading employment taxation specialists indicates that simply banning private use of the van is not sufficient to avoid the BIK charge.'