“New rules that would have seen company car benefit-in-kind tax charges applied to double-cab pick-ups have been scrapped by HMRC a week after them being announced.
The U-turn follows HMRC’s decision to update guidance on double-cab pick-up trucks following a Court of Appeal judgement in 2020. Just last week, the Treasury announced that from 1 July this year double-cab pick-ups would no longer be taxed as goods vehicles, but would instead be classed as cars for the purposes of calculating capital allowances and benefit-in-kind (BiK) liabilities for drivers.
In an announcement yesterday (19 February 2024), the government says it has “listened carefully to views from farmers and the motoring industry” over the potential impacts of last week’s changes, and withdrawn the new guidance. This means that double-cab pick-ups will continue to be classified as commercial vehicles for BiK company car tax, according to the Treasury statement.
The government says it has acknowledged that its new guidance would have an effect “not consistent” with its broader objectives of supporting farmers and the automotive industry, although it makes no attempt to explain why this fact wasn’t clear last week when the changes were announced.”
HMRC have recently updated their ‘Employment Income Manual’ with a change to the tax treatment of double cab pickup trucks from 1 July 2024. From this date onwards, HMRC will classify double cab pickups as cars rather than vans for employment tax purposes. This change will have a significant impact on businesses using these vehicles, affecting their tax liabilities and financial planning strategies.
These changes could have a significant impact on employees’ tax, so please get in contact with us to ensure the tax implications are understood.
For those who currently provide these vehicles, there should be a consideration as to the optimal time to dispose of them and whether there is to be any like for like replacement. It is expected the market will be volatile following the tax publication.
Impact on Employment Tax
For double cab pickups purchased, leased, or ordered prior to 1 July 2024, the previous rules will remain in place. These vehicles will continue to be treated as vans for employment tax purposes. The provision of a pre-1 July 2024 double cab pickup by an employer will continue to be that of a van benefit until the earlier of the vehicle disposal, lease expiry, or 5 April 2028.
From 5 April 2028 onwards, the benefit in kind (BIK) on individuals will transition from a van BIK to a car BIK, which will likely result in higher tax charges.
Examples taken from the HMRC publication:
Example 1 – Employer A purchased a double cab pickup on 14 September 2024. As this purchase is post 1 July 2024, the vehicle would be classified as a car and a car benefit charge would arise.
Example 2 – Employer B leased a double cab pickup on 10 April 2024. As this was leased before 1 July 2024, the previous rules continue to apply for Employer B until the earlier of the lease expiry, or 5 April 2028.
Example 3 – Employer C purchased a double cab pickup on 10 July 2023. This was subsequently traded in on 1 November 2024 for another double cab pickup. The previous rules apply to the first vehicle until the trade in point on 1 November 2024. As the new double cab pickup was purchased after 1 July 2024, it will represent a car under the new rules and a car benefit charge would arise.
Example 4 – Employer D placed an order for a double cab pickup on 5 January 2024, but this was not available to the employer until 2 September 2024. As the agreement was entered into before 1 July 2024, the previous rules continue to apply for Employer D until the earlier of disposal, lease expiry, or 5 April 2028.
Impact on individuals
The benefit in kind (BIK) calculations for vans and cars are different.
The BIKs for the provision of a van and fuel are based on flat rate amounts that are set by HMRC each tax year. For 2024/25, the van BIK is £3,960 and the van fuel BIK is £757. The flat rate amount for a fully electric van is £0.
The BIKs for the provision of a car and fuel are based on the vehicle’s CO2 emissions. The higher the CO2 emissions of the vehicle, the higher the BIK multiplier percentage. The BIK multiplier percentage for 2024/25 ranges from 2% for 0g/km cars to 37% for 160g/km + over cars.
For the car BIK, the multiplier is applied to the list price of the vehicle. The list price is the price of the vehicle when new and does not consider the current market value or any dealership discounts.
For the fuel BIK, the multiplier is applied to a flat rate fuel amount that is set by HMRC each tax year. For 2024/25 the flat rate fuel amount is £27,800.
What impact will the change have?
A basic Ford Ranger double cab pickup under the van BIK rules for 2024/25 will result in a BIK of £3,960. If fuel is supplied, then there will be an extra BIK of £757. The same vehicle under the car BIK rules will result in a BIK of £11,100. This is based on a list price of £30,000 and CO2 emissions over 160g/km which generate a multiplier of 37%. If fuel is supplied, then there will be an extra BIK of £10,286 (£27,800 *37%). The van and fuel BIK totals £4,717 whereas the car and fuel BIK totals £21,386. An individual pays tax on their BIKs at 20%, 40% or 45%, depending on their income. The change in treatment from van BIK rules to company car BIK rules for a 40% taxpayer would amount to an extra £6,668 per year in tax. Impact on VATHMRC have not amended the definition of a van for VAT purposes. A van for VAT purposes continues to be a vehicle with a payload over one tonne.The VAT on purchase of a van can be reclaimed if it is supplied to a VAT registered business and it is used for the purposes of their business. HMRC view any incidental private use of commercial vehicles as de-minimis.
If the intended use of the van is for private purposes over the de-minimis threshold, then the full amount of VAT incurred would not be reclaimable and it would need to be apportioned.Effect on Capital AllowancesHMRC have not commented on the effect of this classification for capital allowance purposes. The definition for capital allowances follows that of employment tax and therefore, it would be expected that HMRC will consider double cab pickups as cars for capital allowance purposes from 1 July 2024. The effect of this is that a capital allowance claim will be restricted from 100% relief in the year of purchase to 6% relief every year.
