The best way to buy a van for your small business

Buying Van 780 385 In this article

Whether you’re a builder who needs to transport tools, or a courier whose livelihood depends on having a vehicle, buying a van through your company can be a very tax efficient option.

However, before you start shopping around, there are several things to consider.

Here, Which? explains how to find the right option for you, whether you have a limited company, or you’re a sole trader, and whether you can use the van outside of work. 

What are the tax benefits?

One of the main advantages of getting a van for your small business, rather than a car, is that you can claim 100% of the cost of purchase against your capital allowance. That’s because vans are counted as plants and machinery for tax purposes. 

Essentially, you can deduct the full price of the van from your company profits – before calculating corporation tax. One thing to be aware of is that if you sell the van later, it will count as a company asset, and you’ll need to pay tax.

You need to be really careful and make sure that the vehicle you buy qualifies as a van rather than a car. Fortunately, the government has a helpful list you can consult before you buy.

You can also claim the full VAT back from the cost of your van if your company is registered for VAT. 

You may also be able to claim other costs for using your work van, for instance:

  • Vehicle insurance
  • Fuel
  • Repairs and servicing
  • Parking
  • Breakdown cover
  • Vehicle licence fees 

The tax situation is complex, so you should speak to your accountant. They will be able to tell you whether you should buy your van through your company and exactly how much relief you can claim.

Remember, all the paperwork must be in your company’s name and all the payments must go through your business bank account.

Personal use

If you also use your work van for personal use, it makes the tax situation complicated. It will count as a benefit in kind, and will therefore have implications for your personal tax situation. You’ll also only be able to claim a portion of the VAT back when you buy the vehicle.

If the company pays for fuel, that also counts as a benefit-in-kind and will increase the tax you owe. 

How many personal miles you do will have implications on whether it is more cost-effective for you to buy fuel and expense it back, or for the company to buy it and report it as a benefit-in-kind. 

If you’re planning to use your work van regularly for personal trips, check with your accountant to make sure buying it through the company is the most efficient option.

Vehicle excise duty

You will need to make sure you have paid road tax on your van. This is paid annually or every six months. 

If you pay annually it costs £320, but if you split the payments it will cost you £352 in total. 

If you have an older van, you might get a discounted rate. You can check all the rates on HMRC’s website.

Leasing vs buying outright

If you’ve decided to acquire your company van, the next thing to think about is whether you want to lease a vehicle or buy it outright. There are advantages and disadvantages to both approaches.

The main benefit to leasing a van is that almost everything is wrapped into a simple monthly fee. You’ll have to pay a deposit, but then you know that things like insurance and maintenance are taken care of. Not every leasing company offers the same package, so check the fine print before you sign.

While you can’t claim for a leased car against your capital allowances (because it’s not a company asset), your rental payments could be treated as tax-deductible expenses. You should also be able to claim VAT back on the lease payments and any maintenance costs.

At the end of the lease, you can usually return the van, make a payment to own it outright, or sign a contract for a new one with the company.

The main disadvantages include:

  • there are likely to be strict rules about the mileage you can do
  • you don’t own the van and there may be restrictions on modifications and how you can use it, 
  •  you will be tied in for the duration of the lease

By contrast, if you buy the van, you can use it as you please. There are no restrictions on mileage, and you can adapt it to hold specialist equipment. Even if you use a finance deal or bank loan for your purchase, you will own the vehicle at the end of the arrangement.

As described above, the tax advantages can make buying a company van a sensible financial option. If you can buy it outright up front, you’re likely to pay less overall as you won’t be charged interest.

However, you’ll need to think about and budget for things like insurance and maintenance. Also – if you buy a new van, the value of your company asset will depreciate from the moment you drive it off the forecourt.

Insurance

Just like with a car, van insurance is a legal requirement for driving the vehicles. This protects you and your vehicle – as well as other drivers – in the event of an accident.

If the company owns the van, your insurance will need to cover you for business use. This is sometimes known as commercial use or carriage of own goods. 

If you’re a courier or if you transport goods, you will need insurance that covers you for haulage use.

  • Get more great small business advice and search for insurance through our SME portal

Fuel costs

Your business can claim back VAT on any fuel that it pays for, which is for exclusively business-related. In this circumstance, it should be able to claim back 100% of the VAT.

If the company pays for fuel and you use the van for personal trips, this is classed as a benefit-in-kind. You’ll need to pay something called the Van Fuel Benefit Charge.

In the current tax year (2023-2024), this is £757. 

To work out how much you’ll have to pay, you multiply this figure by your income tax band. For instance, a basic rate taxpayer would need to pay £151 a year. 

However, if the vehicle is electric, you don’t need to pay this tax.

Electric, diesel or petrol

When choosing your van, you’ll need to consider whether you want electric, petrol or diesel. 

If you’re choosing between diesel and petrol, you can use our fuel calculator to see what the price difference is likely to be based on your normal usage. 

The government is planning to ban the sale of new petrol or diesel vans from 2035. While this won’t necessarily impact your purchase now, it’s worth considering how other measures such as the ULEZ in London or the Clean Air Zone in Birmingham might affect you. 

Electric vehicles cost more to buy, but they’re generally cheaper to run than petrol or diesel cars. Whether this will suit you depends on whether there is a charging point at or near your home or business and how far you typically need to drive. 

There are also useful grants that can slash the cost of a company van by 35%. This is capped at £2,500 for some small vans and £5,000 for larger vans. You can read the full details of the scheme at gov.uk.