8th November 2024
The detail behind the Autumn Budget announcements hid a significant change to the treatment of double cab pick-ups (DCPU). Starting 1 April 2025 for Corporation Tax and 6 April 2025 for Income Tax, all DCPUs will be treated as cars for specific tax purposes, including capital allowances, benefits in kind, and certain deductions from business profits.
The specific rationale is that where no clear predominant suitability for carrying goods can be identified, the default shall be that a vehicle is a car.
From 06 April 2025, these vehicles will be treated as cars for Benefit in Kind purposes. The difference here can be very significant.
Under the current tax regime, a double cab pick-up treated as a van attracts a much lower Benefit in Kind (BIK) charge. For example:
Tax cost for Higher Rate Taxpayer (40%): £1,887
Under the April 2025 regime, a double cab pick-up treated as a car attracts rates based on CO2 emissions and the vehicle’s list price. Most DCPUs will attract the highest CO2 emissions rate of 37%.
Tax cost for Higher Rate Taxpayer (40%): £10,034
The revised treatment means DCPUs will no longer benefit from the favourable capital allowance regime typically applied to commercial vehicles, instead they will be treated as cars. Whereas commercial vehicles ordinarily get 100% tax relief against business profits in the year of purchase, cars do not. The capital allowances available for cars are based on emissions and for DCPUs will likely be as low as 6% p.a.
These changes will apply from April 2025, but transitional arrangements will protect some existing provisions. Where a DCPU is purchased, leased, or ordered before 05 April 2025, the old rules shall apply to that DCPU until the earlier of:
From the point that one of these events occur, any new or existing DCPUs shall be treated as a car.
If you are coming to the end of life on a DCPU you may want to consider replacing this before April 2025 so that you can get the replacement vehicle under the current van rules and these shall apply until April 2029.
Bear in mind the April 2029 back-stop date when considering finance options on the vehicle. A lease/hire purchase that extends past this point will likely mean that you will suffer these car tax charges at some stage.
Consider that the second hand value of DCPUs may well fall considerably as many of these vehicles are sold and hit the market at a similar time.
To avoid the BIK charges, ensure that there is no private use on the vehicle. With cars, what is considered private use is much stricter. The vehicle would need to be left at the office at the end of the day, the keys kept in the office, and insurance documentation confirming no private use. This is likely to be too challenging to implement in most cases.
HMRC are still incentivising the uptake of pure electric vehicles
As VAT was specifically not listed as changing, we expect that the VAT rules will remain as they currently are. That is, for DCPUs with a payload of greater than 1 tonne, businesses will be able to claim back the VAT on purchase.
Should you have any queries or concerns then please get in touch with your regular Thompson Jenner contact.
