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From 1 July 2024, HMRC are changing their interpretation of the legislation that defines a car for tax purposes, which currently allows drivers of double cab pick-up trucks to enjoy significant tax breaks. Double cab pick-ups are currently classified as commercial vehicles where they have a payload of more than 1 tonne, resulting in lower tax rates.

Under the incoming changes, double cab pick-ups will not automatically be classified as commercial vehicles. Instead, they are very likely to be classified as cars, leading to higher taxes based on the vehicle’s list price and carbon dioxide emissions.

This shift in interpretation will have far-reaching implications for how these vehicles are taxed, impacting both benefits in kind (BIK) and capital allowances. The Tax team here at Bevan Buckland LLP have summarised some of the main points below.

Reclassification of Double Cab Pickups

Currently, double cab pick-ups with a payload exceeding one tonne are classified as commercial vehicles for tax purposes, resulting in lower BIK rates and favourable capital allowances treatment. However, HMRC’s decision to no longer align the tax definitions of cars and vans with those used for VAT purposes means that double cab pick-ups will now likely be considered cars for BIK and capital allowances purposes.

Changes in Benefits in Kind (BIK)

One of the most significant impacts of this reclassification is the adjustment in BIK rates. Currently, individuals using double cab pick-ups as company vehicles benefit from lower BIK rates, resulting in substantial tax savings. However, with the new classification, the BIK for double cab pick-ups will increase significantly. For instance, a double cab pick-up with a list price of £30,000 and CO2 emissions of 230g/km will incur an annual BIK of £11,100 for using the vehicle, significantly higher than the current rates.

Impact on Capital Allowances

Another area affected by the reclassification is capital allowances. Whilst double cab pick-ups are currently treated favourably for capital allowances, the new interpretation means that most, if not all, double cab pick-ups will be classified as cars for capital allowances purposes. This change will limit the tax relief available to businesses purchasing double cab pick-ups for their businesses. Currently, double cab pick-ups 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.

Transitional Arrangements

HMRC are introducing transitional arrangements for employers who purchased, leased, or ordered double cab pick-ups before 1 July 2024 to ease the transition. These arrangements allow businesses to rely on the previous tax treatment until the earlier of disposal, lease expiry, or 5 April 2028, easing the timing of the impact of the change.

Impact on VAT

While the tax treatment of double cab pick-ups for income tax and capital allowances purposes is changing, HMRC have not changed their interpretation with respect of commercial vehicles for VAT purposes. This means that the VAT treatment of double cab pick-ups 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.

In summary, the reclassification of double cab pick-ups 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. By staying informed and proactive, businesses can navigate these changes effectively and ensure compliance with evolving tax regulations.

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These changes may have significant implications for businesses and individuals who use double-cab pick-up trucks for their operations or personal use. We recommend reviewing your current vehicle arrangements and consulting with your usual Bevan Buckland LLP contact to understand the specific impacts on your tax liabilities.