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Can I claim for a van on my tax return? A guide on buying or leasing a business van

4-minute read

Can I claim for a van on my tax return? A guide on buying or leasing a business van
Simply Business Editorial Team

Simply Business Editorial Team

19 July 2021

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A business van is an important investment, so here we look at which option might best suit you.

Read on to find out more about the differences between buying and leasing a van, including the best way to buy or lease, the costs involved, and the tax advantages of each.

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Buying a van for business use

Buying a van means it’s yours, which brings a range of benefits. If you decide to buy instead of lease, you’ll either need to buy the business van outright or fund it through a loan, which is often known as ‘finance’.

Why buy a van?

Buying a van for your business gives you more freedom. You won’t be tied into a strict lease contract and you can make changes to the appearance of the van.

For example, you’ll be able to put your business name and contact details on the van, or make changes to the inside to suit your needs.

Can I claim for a van on my tax return?

You can claim the cost of buying a van as expenses against your income tax bill, but how you do so depends on how you pay tax.

If you use traditional accounting you can claim the van as a capital allowance. Generally, the same applies if you use cash basis accounting, unless you're using simplified expenses.

Meanwhile, if you need a cash injection, there’s also the option to sell your van.

What’s the best way to buy a van if you’re self-employed?

There are a few things to think about when buying a van while you're self-employed.

One option is to buy a van outright. If you have the capital to do so, this is a good option as you'll have no outgoing payments after you’ve bought it. With no extra payments needed, you may find it easier to budget over a longer period of time.

Alternatively, you could use a bank loan to buy a van. While this will accumulate interest over time, those interest charges can be reclaimed against tax.

Should you get a new or second-hand van?

Another thing to decide is whether you buy second-hand or buy new. Second-hand vans are often a good choice for new businesses because they’re cheaper. As long as you put in the research, you should be able to find a reliable used van.

On the other hand, buying new gives you the benefit of having a pristine, unused vehicle. However, you’ll still need to shop around and do your research to find the right van at the best price.

Owning a van after a lease

Keep in mind that there are some leasing options that give you the opportunity to own the van at the end of your leasing period. One option is hire purchase, where you pay an initial deposit followed by monthly instalments. At the end of the agreement, you own the van.

Another option is balloon hire purchase, which may suit new businesses. Here, you pay smaller monthly payments and then a larger ‘balloon’ payment at the end of the agreement, after which you own the vehicle.

Leasing a van for business use

Leasing a van through a limited company is different to buying, as you won’t own it outright. You’ll just be renting it – typically for a monthly fee.

Why lease a van?

If you lease a business van, you won’t need a big chunk of cash as the cost is spread out over the fixed term of a contract. You’ll just need to pay for a deposit and monthly repayments.

Maintenance costs tend to be covered by the leasing company so you won’t have to worry about that either. If you grow attached to the van there might be an option to buy it, as explained above. You’ll just need to commit to a ‘lease purchase’ style agreement.

How much tax can I claim back on a new van?

There are several tax advantages of leasing a van for business. The main one is being able to claim up to 100 per cent VAT back on the monthly payments, if your business is VAT-registered. This is provided that the van is only for business use.

And like buying a van for a small business, you can claim the cost of van rental as an expense when it comes to filing your tax return. Your rental payments can be a tax-deductible expense.

If you want to know more about allowable van, car, and travel expenses, check out gov.uk's guide to travel expenses for the self employed.

Should you buy or lease a van?

Before committing to buying or leasing, it’s important to bear in mind the drawbacks. By buying you’ll be left solely responsible for:

  • the van’s upkeep – including breakdowns, repairs, and general wear and tear
  • the legal logistics – your road tax and insurance responsibilities

The costs of breakdowns and repairs can be high (particularly if you're a startup), but if you can cope with this outlay then buying could make more sense. Van leasing certainly isn’t perfect for all, as you might face things like:

  • mileage restrictions and hefty penalties if you go over them
  • long-term contracts that may not fit with your changing circumstances
  • an overall payment that ultimately outweighs the cost of buying outright

So, buying tends to bring a bit more freedom while a van lease could give you a little more security. Neither option is necessarily better than the other and you get tax relief with both.

What fits best will depend on your business. Take a look at your balance sheet, weigh up the pros and cons, and pick your option carefully.

Did you buy or lease your business van? Tell us about your experience in the comments

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We create this content for general information purposes and it should not be taken as advice. Always take professional advice. Read our full disclaimer

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