U-turn made on double cab pickups: No change for now
By Chris Campbell, Head of Tax (Tax Practice and Owner Managed Business Taxes)
22 February 2024
A week after HMRC announced new guidance on the tax treatment of double cab pickups for employment tax benefit in kind and capital allowances purposes, the proposed changes will no longer take effect.
On Monday 12 February, HMRC announced a change to the benefit in kind and capital allowances treatment of double cab pickups, meaning they would no longer follow the VAT rules and would be treated as cars instead of vans from July 2024.
This announcement provoked a strong reaction from agricultural and automotive sectors as well as professional bodies, including ICAS. If it taken effect, there would have been a significant impact on the tax position for both directors and employees using a vehicle as well as the capital allowances on the businesses buying double cab pickups.
The impact of double cab pickups being classed as cars
The company car benefit rules give rise to a more significant taxable benefit compared with the van benefit rules, as cars are taxed on a percentage of their manufacturer’s list price, whereas vans are currently subject to a fixed £3,600. Different rules apply for private use, and in the case of a car includes travel from home to a permanent workplace. There’s also a difference in the taxable benefit in the provision of fuel for private use.
In terms of capital allowances, expenditure on cars does not qualify for annual investment allowance (AIA) or full expensing (companies only). In the case of cars with a C02 emission above 50 g/km, the writing down allowances available could be as low as 6% per annum. This is contrasted with a van being eligible for full expensing (purchase of new and unused vans by companies only) or AIA, subject to the qualifying criteria being met.
Unexpected u-turn by the government
In recognition of the impact of the proposed changes, the government issued an update on Monday 19 February confirming that HMRC would withdraw the guidance stating that double cab pickups would be treated as cars from July 2024.
The Financial Secretary to the Treasury, Nigel Huddleston did say that the government “will change the law at the next available Finance Bill in order to avoid tax outcomes that could inadvertently harm farmers, van drivers and the UK’s economy.” We welcome the clarity that this gives businesses which provide double cab pickups and their employees. It was also helpful for the tax position to be set out clearly in tax legislation, as opposed to HMRC guidance which could be open to interpretation
VAT treatment continues to apply
Being treated as a car has an impact on the ability to recover the VAT on the purchase of the vehicle. Input VAT is specifically blocked on the purchase of a car unless it is trade stock (such as a motor dealer), is used for taxi or driving instruction or is a pool car not available for private use. There’s also a 50% block on the lease charges of a car that is leased. Input tax recovery is also restricted on fuel for private use.
The VAT treatment of double cab pickups is outlined in VAT notice 700/57. As the result in the turn, this will still apply for benefit in kind and capital allowances purposes.
Double cab pickups are not treated as cars for VAT purposes if they have a payload of one tonne or more. HMRC defines payload as “the difference between a vehicle’s maximum gross weight and its kerbside weight”. This definition will continue to apply for benefit in kind and employment tax purposes.
Let us know your views
We welcome your views, which help inform our work on consultations or other tax-related matters. ICAS responds to many tax calls for evidence and consultations, as well as producing tax policy papers and reports. We also regularly attend meetings with HMRC at which service levels, delays and other issues are discussed, and we raise problems being encountered by members.
Please email tax@icas.com to share your insights and feedback.
