Death of the double cab pickup?
Double cab pickups, the most tax efficient dual purpose company vehicle there has EVER been is to be no more...
Currently double cab pickups with a payload of 1 tonne (1,000kg) or greater are considered vans/commercial vehicles for tax and VAT, meaning they attract very low benefit in kind rates for employees.
However, HMRC have finally caught on to how diverse these vehicles are, proving to be a low tax company vehicle which doubled up as a 'family wagon'.
Well...the end is nigh.
From 1st July 2024 the rules change! For double cab pickups purchased from 1st July 2024 HMRC will no longer interpret the legislation that defines car and van for tax purposes in line with the definitions used for VAT purposes. The VAT approach for double cab pickups has long been based purely on the payload; if it was 1 tonne (1,000kg) or greater then it was considered a van, if it was under it was a car. HMRC, for simplicity, decided to honour this method for the tax classification also.
To put this into monetary terms;
Currently a Ford Ranger double cab pick up is seen as a van for Benefit in Kind purposes, and so an individual is assessed as follows;
Van benefit £3,960 @ 20% income tax = £792 personal tax (£1,584 if higher rate taxpayer)
Van fuel (if provided) £757 @ 20% income tax = £151 personal tax (£303 if higher rate taxpayer)
Where as under the new legislation, if the Ford Ranger double cab (dependent on model) was treated as a car, the individual would be assessed as follows;
Car benefit £13,231 @ 20% income tax = £2,646 personal tax (£5,292 if higher rate taxpayer)
Car fuel (if provided) £10,286 @ 20% income tax = £2,057 personal tax (£4,114 if higher rate tax payer)
To summarise, that is personal tax of £943 (@ 20% or £1,887 @ 40%) for a ‘van’ vs £4,703 (@ 20% or £9,406 @ 40%) for a ‘car’, so an increase of £3,760 for a basic rate taxpayer or £7,519 for a higher rate taxpayer!
There have been cases in the past where vehicles could be considered to have dual purpose, the most well known being 'Payne & Ors (Coca-Cola) v R & C Commrs (2020)' surrounding modified vans (think your VW Transporters with a bench behind the driver). The determining factors in this case were the primary purpose of the vehicle, was its primary purpose that of carriage of goods?
HMRC state "Going forward, classification of double cab pickups will therefore need to be determined by assessing the vehicle as a whole at the point that it is made available to determine whether the vehicle construction has a primary suitability as per the two-part test outlined at EIM23115 onwards. It therefore follows that from 1 July 2024 most if not all double cab pickups will be classified as cars when calculating the benefit charge. This is because typically these vehicles are equally suited to convey passengers and goods and have no predominant suitability."
Transitional arrangements will apply for employers that have purchased, leased, or ordered a double cab pickup before 1 July 2024, whereby they will be able to rely upon the previous treatment until the earlier of disposal, lease expiry, or 5 April 2028. The position prior to 1 July 2024 remains unchanged as outlined at EIM23150.
Full details of the transitional arrangements can be found here; https://www.gov.uk/hmrc-internal-manuals/employment-income-manual/eim23151
This not only causes a headache for many business owners in the sense of tax treatments, but for savvy business owners it will also be important to decide when to dispose of the impacted vehicles - as no doubt the market for selling and buying double cab pickups will see large fluctuations in supply & demand before 1st July 2024 and running up to 5th April 2028. So business owners who are commercially savvy will want to plan their purchase or disposal with this in mind.
Capital allowances on double cab pick ups
It will also be interesting to have confirmation from HMRC how this impacts the tax relief (capital allowances) available on double cab pick ups from 1st July 2024.
Pro-active accountancy
It’s important to speak to your accountant before committing to the purchase or lease of a vehicle for your business; to ensure you fully understand the VAT, Benefit in Kind, Capital Allowances (tax relief) implications of your selected vehicle(s).
Is your accountant making you aware of ever changing legislation? If not, book a no-obligation call with me to see how I can help you to save tax, improve your business performance, and make time-saving efficiencies.
*REVISION
Less than a week after publishing this blog (and HMRC’s initial revision to the legislation), HMRC reverted the legislation back to that prior to the above revision. Therefore, double cab pickups with a payload of greater than 1 tonne will continue to be treated as a commercial vehicle for tax purposes. Double cab pickups with a payload of less than 1 tonne continue to be treated as cars, as they previously were.