16 Feb Tax on Double Cab Pickups is Changing
UPDATE 20 FEBRUARY 2024. The UK Government has reversed the tax hike for double-cab pickups. One week on from the announcement that the tax treatment and classification of double-cab pickups was changing, HMRC has scrapped the plans. Double-cab pickups will continue to be treated as commercial vehicles and, as such, continue to benefit from the flat rate benefit in kind calculation.
16 February 2024
Impact on Benefit in Kind
HMRC have been debating the tax treatment of double cab pickups for a number of years and they have just released details of a big change in the calculation of the benefit in kind (BIK) on these vehicles. Until now, the benefit in kind has been solely based on the payload of the vehicle meaning the vast majority of double cab pickups benefitted from a fixed benefit in kind charge. This will now be changed so that all double cab pickups with a second row of seats will be deemed as suitable for private use and as such the BIK figure will be calculated in the same way as a car. This will cause a considerable increase in the tax liability on these vehicles.
There are exceptions that will mean that double cab pickups with no back seats and rear windows will still be classed as commercial vehicles and as such the previous method of a fixed BIK charge will still apply. There is also a transitional arrangement that means that any vehicle purchased, leased or ordered before the 1st of July 2024 will still have the fixed BIK charge until the earlier of the vehicle disposal, lease expiry, or 5 April 2028.
Impact on Capital Allowances
Another area affected by the reclassification is capital allowances. Whilst double cab pickups are currently treated favourably for capital allowances, the new interpretation means that most, if not all, double cab pickups will be classified as cars for capital allowances purposes. This change will limit the tax relief available to businesses purchasing double cab pickups for their businesses. Currently, double cab pickups qualify for the annual investment allowance, attracting 100% tax relief in the year of purchase. Going forward, tax relief will be restricted to 18%/6% per annum, depending on the vehicle’s CO2 emissions.
Impact on VAT
While the tax treatment of double cab pickups for income tax and capital allowances purposes is changing, HMRC has not changed their interpretation with respect to commercial vehicles for VAT purposes. This means that the VAT treatment of double cab pickups remains unchanged, with VAT reclaimable for vehicles used for business purposes. However, businesses should be mindful of any incidental private use of commercial vehicles, which may impact the ability to reclaim VAT.
What should you do now?
In summary, the reclassification of double cab pickups by HMRC will have significant implications for businesses and individuals. Affected parties need to review their vehicle arrangements, understand the specific impacts on their tax liabilities, and consider consulting with their tax advisors to explore potential strategies to mitigate any adverse tax consequences. If a double cab pickup was in your business plans for the future, taking action now may save you considerable tax.