Businesses and employees who use double cab pick-up trucks (DCPUs) as work vehicles are set to lose out on tax perks.
From April 2025, DCPUs will no longer be treated as commercial vehicles for tax and capital allowance purposes. Their reclassification as cars will mean any personal use of a pick-up will result in a higher tax charge as a benefit-in-kind (BIK). It also means employers lose the right to deduct the cost of a DCPU from profits before tax under the Annual Investment Allowance (AIA).
What has triggered the change?
The changes were announced in the small print of the recent Autumn Budget. But the seeds for the reclassification were planted in a 2020 Court of Appeal ruling in favour of HMRC, which had argued that the tax benefits associated with commercial vehicles should only apply to those designed for commercial purposes, such as vans.
As this definition does not apply to DCPUs, the previous government was all set to move ahead with the reclassification in June 2024. However, after a backlash from farmers and other business sectors where DCPUs are commonly used, the then government quickly backtracked, promising to legislate to rewrite the definition of a commercial vehicle.
That didn’t happen before the May election, and the new Labour administration has chosen to stick with what it calls the definitions set out in case law.
What are the differences in tax treatment between vans and cars?
When a company vehicle is used for private purposes, including commuting to and from work, it counts as a benefit-in-kind, or a perk on top of your normal salary. As such, the benefit is taxable.
Both cars and vans/commercial vehicles are liable to be taxed as a BIK if they are used for private purposes. But the way the tax is calculated is different, with commercial vehicles working out cheaper in most circumstances.
The amount of BIK tax payable on a company car depends on its list price, its CO2 emissions, its fuel type, whether you have access to the car full or part-time, or whether you pay any contribution to its running costs and upkeep. Tax obligations are worked out on a sliding scale factoring in the above and added to your taxable income.
With vans and commercial vehicles, however, there is just the one single flat rate. While the BIK tax rates on electric, hybrid and low-emission cars are generally lower, the commercial vehicle rate always works out cheaper than any petrol, diesel of LPG car.
Act now
The advice if you still plan to use DCPUs as commercial vehicles for your business is to act now. Businesses can still use AIA on pick-up purchases before April 2025. Just be sure that the delivery date, or the date the asset is brought into use as per the terms of any financing agreement, falls before April 6.
Completing the purchase or lease of a DCPU before April 6 will also entitle businesses to take advantage of transitional arrangements which will continue to treat pick-ups as commercial vehicles for BIK purposes up to April 2029, or whenever they are disposed of or the lease expires before that.
