Can I Buy a Van Through My Business as a Sole Trader?

Buying a van for your business might be one of the most expensive purchases you make so you need to be armed with the full facts before making such a monumental decision. There will be tax and VAT implications when purchasing a van as a sole trader.

But first, let’s start with the basics about a sole trader van purchase and then how that relates to HMRC and VAT.

Can I buy a van through my business as a sole trader? Yes, a sole trader can buy a van through their business. The business can claim capital allowances and associated costs of running the van can also be offset against profit reducing the business’s overall tax liability. Many variables make this a complex area.

Below you can read our company van and sole trader guide. We will walk you through the practical, financial and tax considerations of buying a van for your business. You can then make an informed decision about whether it is worth buying a van through my business.

Buying a van through a business as a sole trader

Buying a van for business as a sole trader is different from a limited company. When you run your business as a sole trader you are the business while a limited company is a separate legal entity to the business owners. 

This means that the tax treatment is applied differently.

If you’re a sole trader or a partner, you can claim simplified mileage expenses on business vehicles – if you have not already claimed for them in another way.

Check if simplified mileage expenses would be more beneficial before deciding about buying a van for your business. You can use the free HMRC (HM Revenue and Customs) simplified expenses checker to find out which method is best for you.

Be aware that you cannot change the method used for a vehicle once you have started. You must keep the same method for the entirety of the time you have that van in the business.

Capital allowances for vans through a sole trader business

If you’re a sole trader or partner and you also use your van outside your business, work out what you can claim based on the amount of business use.

Can a sole trader claim VAT back on a van?

Yes, provided the sole trader is VAT registered then they can claim VAT back on a van. You cannot reclaim the VAT if you are not VAT registered and you must only use the vehicle for business use. Commercial vehicles such as vans tend to only have a business use.

You might be able to reclaim all the VAT on a new van or commercial vehicle if you use it only for business. You must be able to show that it is not used on a personal basis, for example it’s specified in your employee’s contract.

‘Personal use’ includes travelling between home and work unless it’s a temporary place of work.

You can usually reclaim the VAT for:

• All business-related running and maintenance costs, like repairs or off-street parking.
• Any accessories you’ve fitted for business use.

You can do this even if you cannot reclaim VAT on the van itself – there are pros and cons to being VAT registered if you need to consider it.

Do sole traders pay VAT on vans?

Yes, sole traders do pay VAT on vans, but only if they are buying it from a VAT registered business. They can only claim all the VAT if it is being used for business which it should be as a commercial vehicle. 

If it will be used 10% for personal, then the sole trader should adjust the VAT accordingly. On a car when it’s used privately, you can’t claim the VAT so it’s more beneficial to go with a van purchase in this case.

Buying a van for a limited company / business

There are various considerations when contemplating buying a van for business. 

As an employer providing company vans and fuel to your employees, you have certain National Insurance and reporting obligations.

This includes any van used for:

• Business journeys.
• Commuting.
• Private journeys.

You do not have to report or pay anything to HM Revenue and Customs (HMRC) if your van is only used for business journeys or as a pool van.

A business journey is a trip:

• made as part of work (such as a service engineer travelling between appointments)
• to a temporary workplace

Vans used for ‘insignificant’ private journeys are exempt, for example making a slight detour to pick up a newspaper on the way to work.

Pool vans

You will not need to report your van if it’s all the following:

• Available for use and used by more than 1 employee.
• Available to each employee because they need it to do their job.
• Not ordinarily used by 1 employee to the exclusion of others.
• Not normally kept at or near employees’ homes.
• Used only for business journeys – limited private use is allowed, but only if it’s incidental to a business journey, for example driving home to allow an early start the next morning.

Claim capital allowances

You can claim capital allowances on vans you buy and use in your business. This means you can deduct part of the value from your profits before you pay tax.

Use writing down allowances to work out what you can claim – vans do qualify for annual investment allowance.

Annual investment allowance

You can deduct the full value of an item that qualifies for annual investment allowance (AIA) from your profits before tax.

If you sell the item after claiming AIA, you may need to pay tax.

You can claim AIA on most plant and machinery up to the AIA amount.  The AIA amount has temporarily increased to £1 million between 1 January 2019 and 31 March 2023.

You cannot claim the full value of items you also use outside your business if you’re a sole trader or partner. Reduce the capital allowances you claim by the amount you use the asset outside your business.

Can I claim for buying a van on my tax return?

As we have found above with the introduction of the principle of capital allowances there are tax benefits to buying a van that would not be achieved if you bought the van personally. 

On top of this associated costs of running the van will be tax deductible so each pound you spend on servicing, repairs, insurance, fuel etc will reduce your tax.

Until 31 March 2023, your business will be able to claim the Annual Investment Allowance of up to £1 million so you can potentially offset the full value of the new plant and machinery against your tax bill in the year of purchase. 

This is worth considering if you are thinking about replacing vehicles near that time. The timing of that decision could rapidly accelerate the potential tax you can claim on your tax return.

Should I buy or lease a van for my business

Now you have proven whether you should buy a van through your business you need to think about how you are going to pay for it. The way in which you fund the purchase of the van makes no difference to the benefit the individual driving it receives so will not change their personal tax situation.

The way you buy a van through your business does affect cash, accounting, and tax treatment. Look at the following common options and the potential outcomes of each to see what works best for your business situation.

Buy outright

When buying a van outright the following transactions will be recorded in your accounting records. For this example, we are buying a van through our business for £20,000.

• Assets increased by £20,000.
• Cash decreases by £20,000.

Each year a charge called depreciation is applied to the profit and loss account to allow for the fact the van will go down in value. We assume the van is written off over a four-year period.

• Depreciation increases by £5,000.
• Asset decreases by £5,000.

Your balance sheet shows the financial position of your business has decreased by £5,000 being the decrease in the value of the van.

Your profit and loss account shows the performance of your business decreases by £5,000 being the depreciation charge for the decrease in the value of the van.

This will happen each financial year until the value of the van on your balance sheet is zero.

When buying a van outright through a business capital allowances are calculated and reduce your tax liability.

Buying a van through your business by using cash in the business is a practical option if you have the cash available and do not require it for other items. The company owns the van, and it is an asset of the business which could be sold if needed.

Hire Purchase

The van will be displayed on the Balance Sheet of the business as an asset. Any finance that is still outstanding on the van will be shown as a liability in the Balance Sheet which reduces with each payment made.

Each payment made to the Hire Purchase company will have an interest charge which is a cost to the business recorded in the profit and loss. This is tax deductible.

For the most part, the rest of the transactions will be in line with if you bought the van outright.

Lease

You do not own the vehicle, so it is not recorded in the Balance Sheet of the business as an asset. A note will be entered into your statutory accounts to provide for the fact the business has a commitment to pay for the van over the rest of the contract term.

The cost of the van is expenses to the profit and loss account. This cost is tax-deductible.

Major benefits of leasing a van for your business

1. Low monthly payments.
2. Brand new vehicle each time your lease ends.
3. Lower deposit.
4. Avoid extra costs – you won’t face the repair and maintenance costs of driving an older van.
5. Certainty of price – if you pay for a maintenance package costs will be covered by the lease company.
6. Don’t worry about depreciation.
7. No road tax – this is normally included.
8. Hassle-free returns – simply hand it back at the end of the contract and get a new one.

FAQs about sole traders buying business vans

Can I buy a van as a business expense?

Yes, you can buy several types of vehicles through your business. You could buy a car, motorcycle, van, truck, and lorries. The tax rates and reliefs for each can differ so make sure you understand the rules before making a commitment to buy. 

Can I lease a van if I’m a sole trader?

Sole traders are just as eligible to lease a van as any other business or individual subject to credit checks and affordability. Applying for finance as a sole trader is the same process as applying for finance as any other business.

When operating as a sole trader there is no legal distinction between the person and the business.  When signing a lease contract, you are personally liable for all future payments.  This is where a limited company differs as it is a legal entity in its own right so the contract is between the lessor and the company.

Conclusion

We get it. You work hard and you want a commercial vehicle that is up to the task. It’s a key component of getting the job done. You see other firms driving around in their nice new fleet of vans. 

Why can’t I have that? You ask. 

Well, you might be able to with some careful consideration of the facts. 

The decision of whether to buy a van through your business as sole trader is a difficult one. There are several variables to consider such as how to pay for it, what capital allowances can be claimed, what the overall cost will be, and whether you should allow private usage. 

Seek professional advice where possible. It can be easy to make the wrong decision which could cost you time and money. 

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