Following a series of U-turns on the rules surrounding the tax treatment of double-cab pick-ups, the latest Budget confirmed that they will be taxed as cars from April 2025.
Seen by many businesses as a versatile vehicle to suit personal and commercial needs, particularly within the construction industry, this shift in policy will have financial consequences for those who opt to use these as part of their fleet.
More specifically, the change in policy will increase the benefit-in-kind (BIK) tax charge for employees, and affect the tax deductions available for businesses.
Double-cab pick-up trucks with a payload of one tonne or more will be treated as company cars from 1 April 2025 for Corporation Tax purposes, and from 6 April 2025 for Income Tax purposes.
Reclassification: Car vs Van?
Historically, the tax treatment of double-cab pick-ups has been dependent on the weight; i.e., those with a payload of 1,000kg or more were deemed to be goods vehicles.
In February 2024, however, the previous Government decided that double-cab pick-ups would be classified as cars instead of vans but, less than a week later, they reversed this decision on the back of concerns raised by both the motoring and agricultural industries.
Now, eight months later, the Labour administration has done an about turn to reclassify these vehicles as cars once again, regardless of weight.
Worth noting is that the existing capital allowances treatment, including 100% Annual Investment Allowance (AIA) and full expensing, will apply to double-cab pick-ups purchased before April 2025.
Furthermore, the transitional benefit-in-kind arrangements will apply for employers that have purchased, leased or ordered a double-cab pickup before 6 April 2025. In this case, they will be able to use the previous treatment, until the earlier of disposal, lease expiry, or 5 April 2029.
Impact of the change in tax treatment
Benefit in Kind and National Insurance Contributions (NICs)
As it stands, double-cab pick-ups are subject to a flat rate Benefit in Kind (BiK) value of £3,960, and can benefit from no tax charge where private use is insignificant.
However, the change in classification will mean that the new charge will depend upon the vehicle’s CO2 emissions, and a percentage of the list price, which could add up to thousands more than the current BiK value.
The higher BiK values will also result in higher NICs for employers, adding to the overall cost of providing double-cab pick-ups as company vehicles. Employers may need to take stock of their existing fleet and consider the affordability of this following the shift in policy.
Capital allowances
The capital allowance deductions available for these vehicles will be reduced as a result of the changes, with rates for cars generally being less favourable.
If you purchase a new double-cab pick-up after 6 April 2025, tax relief is available as a percentage of the vehicle’s value (100%, 18% or 6% depending upon the vehicle’s emissions).
Fuel Benefit
Car fuel benefit rates will further increase the tax burden on businesses providing fuel for double-cab pick-ups as part of their fleet.
How can businesses prepare for the new rules?
The key to preparing for the changes, for most businesses, will be to review their existing fleets, and to consider whether changes need to be made to make the provision of company vehicles more cost-effective going forward.
In particular you might want to consider whether it is worth retaining existing vehicles beyond the 5 April 2029 when the transitional rules expire.
Communicating with your employees will also be important, so that they understand how the changes to the tax treatment of double-cab pick-ups will affect their own personal tax bills.
We would encourage you to seek professional advice prior to acquiring or leasing a vehicle for business, to understand the commercial vehicle status and subsequent tax implications.
To speak to one of our expert tax advisers about how this latest U-turn will impact your business, contact us today.
