Government puts brakes on double-cab pickups being taxed as cars in U-turn decision

HMRC surprised all taxpayers who own a double cab pickup as a company vehicle on 12 February by announcing that these vehicles would be classified as cars and not vans, which would have led to higher National Insurance Contributions (NICs) for owners.

HMRC had initially confirmed that, from 1 July 2024, double cab pickups (DCPUs) with a payload of one tonne or more would be treated as cars for both capital allowances and benefit-in-kind (BIK) purposes.

However, due to a backlash from farmers and those in the motoring industry, the Government has reversed their decision.

How will this affect me?

In short, it means your National Insurance Contributions and Income Tax position will stay as they did before HMRC introduced its current guidance.

There is no need to re-evaluate your choices, although it might be worth switching to an electric car (for example) if you wish to pay an even lower rate of tax.

HMRC announced it will withdraw the existing guidance based on an earlier ruling, which means DCPUs will continue to be treated as vans rather than cars.

For your DCPU to qualify as a van, however, you will still need a payload of at least one tonne.

If you have a company car which you use for private use, you will have to pay a BIK contribution.

Your BIK payment rate is calculated based on the P11D value of your vehicle, its CO2 emissions, and your employee’s income tax band.

For example, a new BMW 3 Series Saloon 320d (M Sport Sport-Auto) has a P11D value of £44,185 and a CO2 rate of 30 per cent.

This means its BIK value is £13,256 (£44,185 multiplied by 30 per cent), which for a basic rate taxpayer means a total payment of £2,651 per annum. (BIK value multiplied by the 20 per cent income tax band)

The bands for the current tax year and next, based on CO2 are outlined below:

Most dealerships will be able to provide the P11D value for your vehicle or various online resources can also give you this figure.

Be aware, that a four per cent surcharge applies to diesel vehicles not meeting the RDE2 standard.

Your employee will pay BIK tax on the car, but your business will pay employer National Insurance on the car’s BIK value – this is currently set at 13.8 per cent.

How do vans compare?

If you use it exclusively for work purposes, then the Government will not levy any tax. This encompasses ‘insignificant private use’, which refers to minor diversions like stopping to buy lunch on the way to work or visiting a doctor or dentist during business hours.

HMRC states that this activity does not provide noticeable ‘Benefit-in-kind’ (company cars incur BIK tax as they frequently serve for trips beyond the work commute), hence, there is no tax due.

Where more significant private use is involved, a tax charge is likely to be raised under via BIK. Should the company also provide fuel for private journeys, a separate fuel benefit tax charge will apply.

The charge adjusts annually with the consumer price index. For 2023/24, the taxable amount has risen to £3,960 from £3,600 the previous year. This increase means basic rate taxpayers will now pay £792 annually, while higher rate taxpayers will face a £1,584 charge for the use of their company van in 2023/24. The van benefit charge does not apply to electric vans.

If a van charge applies and the employer decides to cover private travel fuel costs as well, a separate van fuel charge of £757 for 2023/24 will apply. This ‘free fuel’ benefit will incur a tax of £151.40 for basic rate taxpayers and £302.80 for higher rate taxpayers in 2023/24.

How will this affect my business?

As your vehicle will not be classed as a car, you can normally claim the full cost against your business taxable profits in the year of purchase by claiming the Annual Investment Allowance for Capital Allowances purposes.

Capital Allowances allow you, as a business, to write down your qualifying capital expenditure on plants or machinery against your taxable income.

Also, VAT reclamation on purchase price and running costs is possible, so long as you meet the specific conditions and limitations for business use.

All vehicles used for business purposes can claim back 100 per cent of the VAT. As DCPUs are still classed as vans, which emphasises their purpose of being a goods vehicle, you might assume that their use is purely for your business.

However, this is not always the case. Unless your DCPU is a ‘pool’ vehicle (e.g., used only for business purposes and kept at the business’s property) VAT on the purchase price cannot be recovered.

The choice to reverse HMRC’s decision means that the current tax opportunities for DCPUs remain unchanged.

Is it time to switch to an electric vehicle?

Although HMRC reversed its decision, you might still want to consider switching to an electric vehicle.

Electric vehicles are entitled to Enhanced Capital Allowances (ECAs) which permit the deduction of the full cost from profits before tax.

This could result in significant savings, especially in your initial year of purchase.

Also, your electric vehicle will incur lower BIK rates compared to a petrol or diesel car.

This will reduce tax liability for employees if they use your business’s car for personal use.

However, VAT paid on the cost of recharging your electric car and van cannot be recovered as normal input VAT.

The tax incentives offered are something you should consider as you will save money which could impact your business’s finances.

Electric cars are also a benefit to potential customers – they show you are concerned with the environment and are looking to reduce your CO2 footprint.

If you use a vehicle for your business and want advice on your tax obligations, please get in touch with us today.