How to Buy a Van Through Your Business

Many companies, especially young startups, begin with renting or leasing a vehicle as making regular monthly payments helps minimise early impacts on cash flows. However, as a company grows you may reach a stage where you would prefer to purchase a vehicle outright as this provides a number of advantages. Indeed, purchasing a van has become an increasingly popular choice over the past year, as Direct Line Group reported that data from The Society of Motor Manufacturers and Traders recorded an increase of 20.7% in new van registrations as of July 2023, compared to 2022.

Making the decision to buy a van through your business can be beneficial in terms of tax efficiency, which can be advantageous in reducing the overall cost of vehicle ownership. However, there are some considerations to be aware of before making the purchase, such as your eligibility criteria, whether it works for your business, and whether you are making the right financial decision.

In this article, we will explore:

• How to buy a van through your business
• Benefits of buying a van through your business
• Does buying a van reduce corporation tax?
• Using a work van for personal use

(Note: If you're not sure yet whether to buy or lease a vehicle you may want to check out guide first on how to identify if buying or leasing a van is right for your business.)

How to Buy a Van Through Your Business

Before you make any investment, it is important that you first understand whether the vehicle you are buying is classified as a van. It is advisable to check with your dealer that the fleet vehicle is a van and not a car in order to comply with the tax regulations. One way to check this is from HMRC’s list of car derived vans and combi vans.

Tax Allowances

When acquiring a van through your company, ensure you have all of the details and documents accurately recorded in the business’s name, and that the financial payments are processed through the company account. If you buy a vehicle through your limited company, you are able to claim the full VAT on the purchase price. Vans are grouped under plant and machinery, so you can claim the whole cost of the van as a capital allowance, as well as take the price of the van from your business’s taxable profits.

If you are a sole trader, a van is able to be claimed as a capital allowance. It is advisable to speak to your accountant about the tax-based implications the vehicle may have on your business.

New or used

When actually buying your van, assess whether you want to buy one that is brand new or if it has already been used, its condition, and how you will finance it. Consider how many miles you will be using, the costs of your fuel usage, and the vehicle’s emission, and if these expenses are worthwhile for your company.

Business van finance is a good option to consider because you have the choice of a hire purchase or finance lease. It is easy to obtain and also has competitive interest rates, which can help you save money. The two main financing options are:

Hire purchase: a hire purchase lets you own the vehicle at the end of the agreement and allows you to budget effectively with regular payments.

Finance lease: a finance lease means you have until the end of the agreement to determine whether you would like to keep the vehicle.

Once you have found the van you wish to purchase, a business finance broker such as Union Busines Finance will find you the best deal that is tailored to your needs, and if approved, it is possible to receive the funding into your account that same day.

Benefits of buying a van through your business

Buying a van through your business can bring a myriad of benefits that contribute to the company’s financial stability and efficiency of day-to-day operations. The key benefits include:

• Financial control: when you buy a van through your business, it becomes an asset. Although vehicles decline in price over time, the asset will hold residual value that can be used in the future - through a trade-in or as collateral for finance. This long-term investment will also give you a good credit rating and positive cash flow because your company has demonstrated making a worthwhile investment.
• Flexibility: having your own fleet vehicles gives you greater flexibility to carry out business operations with ease at your disposal. For example, scheduling deliveries and transportation of goods without having time constraints by an external provider’s limitations.
• Long-term investment: instead of making ongoing payments without building equity, owning your company van provides more stability and reliability.

Does Buying a Van Reduce Corporation Tax?

Yes! Taking the cost of your commercial van from your company’s taxable profits can contribute to reducing your corporation tax bill. Under the Annual Investment Allowance (AIA), you can deduct the full value of an item that qualifies for AIA from your profits before tax. The annual investment allowance can be claimed on most plant and machinery up to £1 million.

A first year allowance is a form of capital allowance that allows businesses to deduct the full cost of qualifying capital expenditures from their taxable profits in the first year of purchase. This includes electric vehicles with zero CO2 emissions and equipment for electric vehicle charging points.

Using a Work Van for Personal Use

If you are using a commercial vehicle for personal use, you are permitted to use benefit-in-kind (BIK) tax. A BIK is a tax liability for an employee who is provided with the private use of a company van in addition to their salary. The benefit-in-kind is based on the idea that the private use of the company vehicle represents itself as a perk of cash value, and is therefore recognised as a form of taxable income. Usually, a BIK tax has a low fixed rate that changes each year, which is required to be reported to HMRC each year on a P11d.

Depreciation is an accounting process that deducts the total cost of an asset over time. It is a way of allocating the cost of the asset with the gradual decrease of its value. It is important to factor in the depreciation element when buying a van through your business because it can influence tax calculations and financial reporting of fleet vehicles. Ensure that your business’s financial statements demonstrate a realistic vision of the company’s financial health.

Talk to us about our range of business van finance solutions

Ready to buy a van through your business? Here at Union Business Finance, we have over 10 years of experience in finding the best possible solution for your company's needs. Our team of trusted experts is on hand to help you make the right decision when it comes to business van finance.

Our business van finance solutions offer:

• Same day finance
• Rates from 6% APR
• £0 deposit required

To get started, contact us today.