Understanding company van expenses for sole traders

If you are a sole trader, you must consider the tax implications of owning a van for business use. For sole traders, a van is often an indispensable tool of the trade.

The financial implications of owning a company van for a sole trader are more straightforward than limited companies, but there are still some key points you need to be aware of.

The key points to note include:

• Van expenses for sole traders – Sole traders are not subject to Benefit in Kind (BiK) tax, as they own the van personally. Instead, you can claim the business proportion of van-related costs, such as fuel, insurance, and maintenance, as allowable expenses.
• Capital allowances – Sole traders can claim the cost of purchasing a van through capital allowances, such as the Annual Investment Allowance, to reduce taxable profits.
• Van classification – HM Revenue & Customs (HMRC) defines a ‘van’ for tax purposes as a vehicle designed primarily for carrying goods, with a maximum design weight of 3500kg.

Financial rules for regular and electric vans

The financial treatment of vans varies slightly based on the type of van you choose:

Regular vans

• Private use – If you use the van for private journeys (like school runs or weekend trips), it counts as personal use so it cannot be claimed for.
• Insignificant private use – Minor uses, such as stopping for coffee on the way to a job site are generally considered business use and do not need to be excluded from expense claims.

Electric vans

• Incentives – As a sole trader, you can benefit from various grants and discounts when purchasing an electric van, reducing initial costs and promoting greener business practices.

Allowances and deductions

Investing in a van can also bring financial relief:

• Leasing – The costs can be deducted from your profits if you lease a van.
• Purchasing – The cost of purchasing a van can be written off against your tax bill as a business expense, offering upfront financial relief.

VAT recovery for sole traders when charging from home

As a sole trader, you can reclaim VAT incurred when charging your electric vehicle at home, provided it is for business purposes.

However, you are only eligible to recover the VAT proportionate to the vehicle’s business use.

Additionally, VAT incurred when charging your electric vehicle at public locations, such as car parks or service stations, can also be claimed.

The amount recoverable corresponds to the VAT rate applied to the electricity supply.

When charging the van at home, separating the electricity used for the van from general household use is crucial for accurately claiming VAT and expenses for business purposes.

HMRC requires clear documentation to support your claim, so following a structured process is key.

Start by recording all mileage for the van, categorising journeys as either business or personal use.

A detailed log helps you calculate the business-use percentage of the vehicle, which is necessary for determining how much of the charging costs can be claimed.

Many modern chargers come with apps that automatically track electricity used during each charging event. Export or save this data regularly for your records.

If your van charger doesn’t have an app, take a meter reading before and after each charging session. Record the kWh used for every charge.

These methods ensure you can separate EV charging consumption from the rest of your household electricity use.

Use your electricity bill to calculate the cost of the kWh used for charging your van.

Multiply the kWh used for charging by the unit rate shown on your bill.

How to reduce your van’s financial liability

To minimise your van-related expenses, consider the following strategies:

• Track private use accurately – Ensure you keep detailed records of private and business mileage to claim only the business proportion of expenses, reducing your overall taxable income.
• Avoid excessive personal use – Limit private use of the van to ensure the majority of expenses qualify as business-related.
• Share business use – If the van is used by others in your business, ensure their usage is also tracked and primarily for business purposes to maximise allowable expense claims.

If you are a sole trader and would like more advice on the financial implications of owning a van, please contact us today.

Sharla Dandy